PT 01 LQ 13 POI Inducement Theory
Introduction to Inducement
In this section, the speaker introduces the concept of inducement and explains how to identify areas where liquidity has been generated.
Identifying Liquidity
- Look for where liquidity has been generated, ideally right in front of a POI.
- Look at market structure and add in demand zones that are strong because they broke a high.
- Look for sweep zones where liquidity was swept below a low, indicating institutional involvement.
Building Liquidity
In this section, the speaker explains how to build liquidity and increase the probability of a POI playing out.
Building Liquidity
- Look for reactions from supply after a sweep zone.
- Identify areas with available strong liquidity.
- Wait for price to fall back and create more liquidity before entering a trade.
Four Scenarios of Inducement
In this section, the speaker outlines four scenarios that can occur when looking for inducement.
Scenario 1: No Adjustment
- No structural lower high or available liquidity on either side of the POI. Be cautious when trading in this scenario.
Scenario 2: Structural Lower High Only
- A structural lower high is present but there is no available liquidity on either side of the POI. Be cautious when trading in this scenario.
Scenario 3: Available Liquidity Only
- Available liquidity is present on one side of the POI but not on the other. This can be an opportunity if there is enough available liquidity.
Scenario 4: Structural Lower High and Available Liquidity
- A structural lower high is present and there is available liquidity on both sides of the POI. This is the ideal scenario for trading inducement.
Understanding Liquidity and Inducement
In this section, the speaker explains how to identify liquidity and inducement in the market.
Identifying Liquidity
- When there is no leg inducement or lid, there is no available liquidity at that level.
- If you need liquidity to buy from near where you want to be buying, it's most likely going to be below the low.
- The general rule is that if there's nothing here to the left and nothing here to the right, then where is the liquidity? It's going to be down here.
No Inducement Example
- A bearish example where price comes down, pulls up, breaks structure with no leg inducement.
- There's a supply zone that broke structure but just a straight push with nothing in the leg.
- Price pulls back up with no structural high or strong liquidity built just in front of POI.
- Where's the available liquidity? It's on the highs.
Leg Inducement Example
- When price is coming back down, it can use available strong liquidity to the left below that low if there is leg inducement.
- If you're a big guy buying in there's going to be southside liquidity below that low and you can buy.
Understanding POIs and Inducements
In this section, the speaker explains how to identify points of interest (POIs) and inducements in the market. They discuss how these concepts can help traders identify areas of liquidity and make informed trading decisions.
Identifying POIs
- POIs are areas of liquidity in the market where buyers or sellers are likely to be present.
- A strong high or low can indicate a POI.
- A POI becomes high probability if it has adjustments in front of it.
Inducements
- An inducement is an area that induces buyers or sellers into the market, creating liquidity.
- An inducement can be created by stop-loss orders being triggered.
- A POI with an inducement becomes a high probability area for trading.
Applying POIs and Inducements
- When there is no inducement, traders should wait for one to be built before entering a trade.
- Weak lows may not have any available liquidity, so traders should wait for pullback inducement to be built before entering a trade.
Understanding Inducements and Liquidity
In this section, the speaker explains how to identify inducements and liquidity in trading.
Inducement Examples
- When there's no inducement on the left or right, it will probably go here.
- If there is an inducement on either the left or right, there is a decent chance that it might be enough.
- Having both leg and pullback inducements is always going to be the highest probability.
- If you have one but not the other, then it's still pretty decent.
- Having nothing is always going to be the worst scenario.
Available Liquidity
- When prices come into POI, ask where available liquidity is.
- If there isn't any available liquidity, wait for something to be built before getting involved.
- Some traders may want to wait for both leg and pullback inducements before getting involved.
Understanding Strong Liquidity
- Strong liquidity refers to when you have liquidity behind a strong piece of structure.
- Strong liquidity must be significant and break through a low or high point.
- Leg inducement refers to an inducement on the left side of a POI with strong liquidity built in that leg.
- Leg inducement must be on the same timeframe as the POI being analyzed.
Swing Trading Strategies
In this section, the speaker discusses swing trading strategies and how to identify inducements on different time frames.
Identifying Inducements
- As a swing trader, the main time frame is the four-hour chart.
- Look for leg inducement and pullback inducement on the same time frame.
- If there is no structural low, wait for it to be built before looking for pullback inducement.
- Pullback inducement can be built on a lower time frame execution when it comes into your hard time frame POI.
- There are only four scenarios: no adjustment left or right, adjustment on the left but not the right, adjustment on the right but not the left, and adjustment on both sides.
Examples of Inducements
In this section, the speaker provides examples of how to identify inducements in different market situations.
Example 1: No Leg Inducement
- When there is no structural low, wait for pullback inducement to be built.
- Look for clear obvious equals like big millions of the way clear double bottom as an indication of pullback inducement.
Example 2: Both Sides Adjustment
- Look for relatively equal lows that are breaking highs inducing more sell-side liquidity into the market.
- This creates high probability POI purely thinking about engine.