📈

Lecture on Liquidity Inducement in Trading

Jul 8, 2024

Lecture on Liquidity Inducement in Trading

Introduction

  • Speaker: ETM Effects
  • Topic: Liquidity Inducement in Trading
  • Goals:
    • Define liquidity inducement
    • Identify correct inducement
    • Use inducement in trading

What is Liquidity Inducement?

  • Definition: Act where liquidity is engineered around the targeted area.
  • Concept: Price hovers around a target zone before moving to transact orders.
  • Inducement Process:
    1. Price hovers near the zone, causing trader mistakes and early entries.
    2. Price reacts and entices traders close by the intended level.
    3. Liquidity and stop losses build up.
    4. Price eventually targets the initial point of interest (POI).

Understanding Points of Interest (POI)

  • POI Definition: The area where institutions intend to sell (or buy).
  • Components of POI:
    • Supply candle
    • Order block
    • High resistance level
    • Gap
  • Smart Money Trading: Anticipate reactions from POI.
  • Behavior: Price won't head directly to POI but induces traders along the way.

Elements of Liquidity Inducement

  • Stop Hunting: Price actions that build up retail trader stop losses and false breakouts.
  • Retail Traders: Mostly scalp traders looking for quick results.
  • Chart Patterns:
    • One-hour consolidation can show multiple inducement ranges on a one-minute chart.
    • Patterns appear as liquidity grabs on the chart.
  • Example: Supply candles, order blocks, and induced price movements.

Identifying Correct POI and Inducement

  1. Formation of Order Block:
  • Validated order block that broke structure.
    • Strong reaction needed.
  1. Inducement Indicators:
  • Price does not react directly from POI but nearby area.
    • Convincing reactions that lead back to POI and trigger stop hunts.
  1. Types of Price Reactions:
  • Example of how price takes out liquidity and reacts.

Advanced Concepts: Inducement Criteria

  • Fair Price: Key aspect of inducement.
  • Price Extremes: Premium and discount levels.
  • Fair Price Balance: Inducements occur at fair price to balance institutional books.
  • Movement from Fair Price: Richest institutions induce trades at fair price due to lower costs.

Practical Examples

  • Range and Inducement Examples:
    • Using Fibonacci levels: 0, 25, 50, 75, 100.
    • Premium level: Selling
    • Discount level: Buying
  • Price Movements: Analysis of price reactions to various levels (discount, fair price, premium).
  • Inducement Quality:
    • High-Quality Inducement: At fair price.
    • Medium-Quality Inducement: Near fair price but away from extremes.
    • Poor-Quality Inducement: At premium/discount extremes leading to invalid setups.
  • Situations to Avoid:
    • Orders used at premium levels won't sustain further market movements.
    • Focusing on high-quality setups to ensure better trading outcomes.

Conclusion

  • Key Takeaway: Prioritize high-quality inducement setups occurring at fair price.
  • Quality Content: Promise to continue delivering educational content.
  • Call to Action: Engage with content by liking, sharing, and providing suggestions for future topics.

Full transcript