When Day Trading, how do you distinguish between real demand and inducement zones?

There are 3 key points to remember when you want to identify the real demand zone and the fake one. The fake one usually creates liquidity for the real move, the real demand, while leading the market to experience FOMO. This below:

1. Identify Resting Liquidity (Equal Lows)

This area ‘Inducement’ is not something hard to understand; you just need to identify these stop loss areas where the market mostly places their STOP LOSS.

The price goes down to reach this level to gain the necessary resistance, and then this resistance is crucial, as it drives the price upward.



And of course you will ask,

‘How do I identify this zone?’

Yet, normally the price makes a small, temporary upward move from this zone; we call this a fake zone, to deceive you...

Then it only reverses,

and again breaks through it to swipe out the stop loss and reach the real, deeper demand zone below.




2. Check for a Break of Structure (BOS)

  • The Concept: A real, valid demand zone must possess the institutional backing and power required to break the previous market structure (such as breaking the previous high in an uptrend).



  • How to distinguish: When deciding between multiple demand zones, look at which specific zone actually caused the break of the previous high. If a zone failed to break the previous high, it is weak and likely an inducement. Even if a demand zone is located higher up on your chart, if it was the one that successfully broke structure, it is the real, stronger zone to trade from.

3. Locate Fair Value Gaps (FVGs)

  • The Concept: A Fair Value Gap is a rapid three-candle price spike that leaves an untested area with no overlapping wicks. Because price is naturally attracted to these gaps and will want to return to test them, they act like magnets.
  • How to distinguish: Check the location of FVGs relative to your demand zones. If there is an FVG sitting below a demand zone, price will naturally want to pull back to fill that gap. To do so, it must break straight through the higher demand zone, rendering that closer zone an inducement zone and making the zone directly adjacent to or below the FVG the real zone.


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