About this video

• Video Title: The Logic Behind Pre-Market Design Entries
• Channel: ZKE
• Speakers: None explicitly named, but one primary speaker.
• Duration: 14:58

Overview

This video explains the micro-level logic behind a specific trading entry, focusing on price action, order blocks, inducements, and liquidity sweeps. The speaker details how these concepts, combined with Fibonacci retracements, inform trade decisions to identify potential entry and exit points.

Key takeaways

• Market Structure Analysis: The speaker identifies key swing highs and lows, observing how price action respects or breaks these levels to indicate control by buyers or sellers.
• Inducement and Liquidity: The concept of "inducement" is explained as a price level designed to attract traders, often an order block, that can then be used by the market to sweep liquidity.
• Failed Attempts to Move: The speaker emphasizes observing when price fails to make new highs or lows, or fails to break through significant levels, as an indication of potential reversals or continuations.
• Fibonacci Application: Fibonacci levels, particularly the 78.6% and 38.2% retracement zones, are used in conjunction with price action to pinpoint precise entry points.
• Trading Strategy: The core strategy involves identifying areas where price has failed to correct or has previously rejected, anticipating a move to sweep liquidity before continuing in the intended direction.

Here's a step-by-step trading strategy derived from the video, with a detailed explanation of inducements:

Trading Strategy: Price Action and Liquidity Sweep Entry

This strategy focuses on identifying precise entry points by analyzing market structure, anticipating liquidity grabs, and utilizing Fibonacci levels.

Step 1: Identify Market Structure and Potential Trend Direction

• Observation: Analyze higher timeframes to understand the overall market direction. Look for significant swing highs and swing lows.
• Action: Determine if the market is showing signs of bullishness (higher highs and higher lows) or bearishness (lower highs and lower lows). The strategy presented leans towards identifying shorting opportunities when bullish structure seems to be failing.

Step 2: Locate Broken Structure and Correction Zones

• Observation: Find a swing high that has been broken and subsequently corrected. This means price moved above a previous high and then came back down to retest or break below that level.
• Action: Draw out the range of this correction. The speaker identifies an "order block" within this correction zone.

Step 3: Identify Inducement (The Bait)

• Definition: An inducement is an area or a price level designed to attract traders into a trade that is likely to move against them. It's a form of manipulation where the market maker "baits" retail traders. In this video, the "order block" identified in Step 2 serves as an inducement for buys.
• Purpose: This zone is expected to induce buying activity. Traders who see this structure might anticipate a bullish continuation and place buy orders.
• Speaker's View: The speaker views this inducement zone as a place where "buyers have control" initially and that it can "induce a bullish reaction." However, the key is that this reaction might not be sustained.

Step 4: Analyze Failure to Continue or Break Key Levels

• Observation 1 (Failure to Continue Bullish): Observe if price, after interacting with the inducement zone, fails to make significant bullish progress (e.g., fails to break previous highs, fails to sustain higher prices). The speaker notes multiple rejections from an area, indicating sellers are present.
• Observation 2 (Failure to Break Support): Look for instances where price had an opportunity to move lower (or higher, depending on the trade context) but failed to break a critical support (or resistance) level. This failure can also act as an inducement for the opposite side.
• Action: If price fails to continue its potential upward move after interacting with the inducement for buyers, it suggests sellers might be taking control despite the initial "inducement."

Step 5: Look for Liquidity Sweeps and Second Attempts

• Concept: After an inducement is formed and potentially triggers some initial trades, the market often makes a "sweep" of liquidity. This involves price moving decisively beyond a recent high or low to trigger stop-loss orders and capture pending orders on the other side.
• "Second Raid" / Sweep: The speaker discusses a "sweep of liquidity" and a "second raid to fall back in continuous direction." This implies that after an initial attempt to move higher (driven by the inducement), price might briefly push higher to grab liquidity (hitting stop losses of early sellers or triggering new buy orders) before reversing sharply.
• Action: Wait for price to sweep critical highs (if looking for a short) or lows (if looking for a long). This sweep confirms the presence of liquidity and the potential for a reversal. The speaker specifically looks for price failing to mitigate higher highs after a sweep, indicating selling pressure.

Step 6: Integrate Fibonacci Levels for Precise Entry

• Observation: Once a valid inducement and a liquidity sweep have been identified, or a clear failure to break structure is observed, apply Fibonacci retracement levels.
• Speaker's Method: The speaker uses Fibonacci on a smaller, internal structure (like a broken swing low that's now support) to find a precise entry. For a bearish trade, they might look for price to retrace a portion of its move downwards and find resistance at a Fib level (e.g., 38.2% or 78.6% as discussed).
• Action: Identify a specific Fibonacci retracement level (like the 38.2% or 78.6%) within a zone of interest (e.g., a previous rejection area or an order block) that aligns with the anticipated reversal after a liquidity sweep.

Step 7: Enter the Trade and Set Targets

• Entry: Enter the trade when price shows a reaction at the identified Fibonacci level, confirming the rejection or support indicated by the previous analysis. For the bearish example, this would be entering a short position.
• Stop Loss: Place the stop loss beyond the recent high that was swept (for a short) or beyond the recent low (for a long).
• Targets:
  • First Target: A significant previous low or an area where liquidity is expected to be.
  • Overall Target: A deeper level, often an area that has not been "corrected" or "tapped" previously, implying significant liquidity exists there. The speaker trades "inducement to inducement level to level."

Elaboration on Inducements:

Inducements are a crucial concept in understanding how professional traders might operate within the market. They are essentially designed traps.

• How they work:

  1. Establish Structure: A market maker or institutional trader might allow price to move to a certain point, creating a recognizable pattern or level (like a significant support/resistance, an order block, or a trendline).
  2. Attract Retail Traders: This level is then presented as an obvious entry point for retail traders. For instance, a bullish order block might appear to offer a great buying opportunity.
  3. Trigger Orders: Retail traders, seeing this apparent opportunity, enter trades. If they are buying, they place buy orders. If they are selling, they place sell orders.
  4. Liquidity Grab: The "smart money" then uses these triggered orders (and stop-loss orders placed by early entrants) as fuel. They might push price slightly beyond the inducement level in the opposite direction of the retail trade's expectation (e.g., push price slightly higher after the bullish inducement to trigger buy stops) to collect liquidity.
  5. Reversal: Once sufficient liquidity is gathered, price reverses sharply in the intended direction, often catching the traders who were induced out of their positions or leading them into losses.

• Examples from the video:

  • Bullish Inducement (for Sales): The speaker identifies an "order block" that should induce buyers. However, because price repeatedly fails to make higher highs or break significant resistance after interacting with this zone, the speaker uses it as a point to anticipate a bearish move (sales). The order block acts as the bait for buyers, and once they are in, sellers can potentially push the price down.
  • Uncorrected Levels as Inducements: An area on the chart that price has never "corrected" or "tapped" is also a form of inducement. Traders might see this as a future target. However, price can sometimes sweep through such areas very quickly on its way to another level, or it might be the ultimate target after a series of other inducements are exploited. The speaker notes that a level below has not been corrected, making it a potential target for a downward move.

In essence, the strategy involves:

1. Recognizing the setup that appears favorable for one direction (the inducement).
2. Waiting for price to interact with it and then demonstrating weakness or failure.
3. Looking for a liquidity sweep.
4. Entering the trade in the direction opposite to the initial inducement's apparent signal, often at a Fibonacci level that confirms the reversal.