Intro to the Inducement Model - ICT Concepts

Summary

This video explains the inducement model in trading, comparing it to the 2022 mentorship model. The model focuses on internal liquidity within a range that is tapped before the actual market move occurs. It illustrates how liquidity is run, inducing traders to take positions, only to have those positions swept before the real move. Using examples on different time frames, the video shows how fair value gaps, break structures, and liquidity grabs create setups that influence trader behavior. It concludes by encouraging experimentation with the inducement model to understand its dynamics better.

Takeaways

• 😀 The inducement model involves running liquidity resting above the market before a significant move occurs.
• 😀 It is similar to the 2022 mentorship model, where liquidity is swept before the real market move takes place.
• 😀 A fair value gap is often present in the inducement model, providing an entry point for traders.
• 😀 The model typically involves a liquidity grab where stop-loss orders are triggered before a major price move.
• 😀 An example of the inducement model shows a low, followed by a higher high, running liquidity before a price drop.
• 😀 Traders enter a fair value gap and place their stops at break-even, which can later be swept by the market.
• 😀 The inducement is completed when the market breaks structure with a displacement move, followed by running a liquidity range.
• 😀 A higher timeframe example shows a fair value gap that attracts long positions, with stop-losses below it.
• 😀 Traders need to be aware of liquidity resting in equal lows, as these are often targeted before the real move occurs.
• 😀 The inducement model encourages experimentation, as it focuses on internal liquidity in a range being cleared before a larger move.

Q & A

What is the inducement model in trading?

The inducement model in trading refers to a strategy where liquidity is drawn into a range, often inducing traders to make moves based on this liquidity before the actual market move happens. The model relies on creating false signals that lead traders into positions that are later stopped out before the real market move takes place.

How is the inducement model different from the 2022 mentorship model?

The inducement model and the 2022 mentorship model share similarities in terms of liquidity manipulation, but the inducement model focuses specifically on the internal liquidity within a range being swept before the market moves in the opposite direction. The mentorship model, however, may have broader strategies and setups in its approach.

What role does liquidity play in the inducement model?

Liquidity plays a crucial role in the inducement model as the market participants’ stops and orders create liquidity. The inducement model involves identifying areas of liquidity, often within a range, and triggering those liquidity areas before the true market move occurs.

What is a fair value gap in the context of the inducement model?

A fair value gap is an area where there is an imbalance in price action, often seen on a chart as a gap between price movements. In the inducement model, this gap is used to enter trades, as it’s believed that the market will often revisit these areas to 'fill' the gap, thereby inducing traders to take positions.

How does the inducement model use break of structure?

The inducement model uses the concept of a break of structure, which occurs when the market makes a significant price movement that breaks previous highs or lows. This break often induces traders to believe the market is continuing in a direction, but it's actually part of the setup to sweep liquidity before the actual market move occurs.

What does it mean when the script mentions 'internal range liquidity'?

Internal range liquidity refers to the liquidity within a specific price range in the market. This liquidity is typically composed of stop-loss orders and resting orders that can be targeted by the market before the real move begins. These are the liquidity areas that are often swept in the inducement model.

Why do traders move their stops to break even during the inducement model?

Traders move their stops to break even after the market starts moving in their favor to minimize risk. In the inducement model, this is a key moment where the market often runs the traders’ stops to trigger a liquidity sweep before the real price move happens.

What is meant by 'sweeping liquidity'?

Sweeping liquidity refers to the action of the market moving in a way that triggers stop-loss orders and other liquidity areas. In the inducement model, the market sweeps liquidity by running through areas with accumulated orders, often before the actual intended market move.

What happens after liquidity is swept in the inducement model?

Once liquidity is swept, the inducement model suggests that the market will move in the opposite direction to the initial false move, completing the actual price move that traders had been expecting before the liquidity sweep occurred.

Can you provide an example of an inducement model setup?

An example is when the market creates a low, followed by a lower high, then sweeps liquidity at the low before breaking structure and inducing traders to go long. After the liquidity is run, the market moves in the opposite direction, triggering a real move that catches traders who entered based on the inducement.