What is Inducement?

12th April • 4 min read

Table of Contents

Every trader is at risk of Inducement.

SMC Traders are just as at risk as other traders when it comes to liquidity and inducement. But there’s things we can look out for to give ourselves the best opportunity of staying safe in the market. Instead of diving into every Supply and Demand Zone, or every ChoCh (Change of Character), we need to have patience and read what the market is telling us. Failing to do so will result in unnecessary loses.

Below we will cover Inducement and show some examples of how to spot it, and stay as safe as possible from falling victim to it.

So what is Inducement?

Inducement is when price has been manipulated in such a way that it creates liquidity in areas that banks want to move price to and from.

In the example to the left, you can see that an Orderblock (demand zone) was formed by an impulsive move that broke structure, then price ranged for a bit. The $ symbols show where liquidity most likely lies and where banks will likely want to manipulate price before pushing upwards.

Once price has swept the liquidity at the bottom of the range, it then can continue its move to the upside.

Points 1 and 2 are likely areas where the average trader would be looking to buy or sell, at support and resistance zones, and break out traders. 

Many traders would look at this and call it a stop hunt. And they would be correct for saying that. Large institutions do hunt stop losses as the liquidity helps fuel their intended moves.

As SMC traders, we look at these areas and anticipate this kind of market behaviour. But this does not mean SMC traders are immune to being induced like this, and we will cover this below.

How SMC Traders can fall victim to Inducement 

In this example we will look at how SMC traders can also fall into the inducement trap.

Here we have a simple ChoCh (Change of Character) model. Many new SMC traders and also some experienced, will see a ChoCh and just dive into a trade. But what some fail to do, is read the charts and identify if they are being induced by the large institutions. And this can be avoided with a little more patience and understanding of what the market is telling us.

They know how we trade, so why wouldn’t they take advantage of us?

Here we can see the impatient SMC trader would’ve been stopped out at the 1st ChoCh (Change of Character). And that stop loss would’ve been liquidity in favour of the large institutions.

By waiting for the higher time frame Demand to be mitigated, and waiting for a lower time frame entry, we increase our chances of the trade working in our favour.

Rushing into a trade too early will result avoidable loses, and can be detrimental to your trading psychology. Stay patient.

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