The Investor Diary Entry #86: October 5, 2025
In my last post, I began explaining the first part of this plan, which focuses on identifying the trading range using concepts from Smart Money Concepts, or SMC. Today, I want to move to the second part, which is understanding and identifying inducement. I am finding that this concept makes the entire process of finding the trading range much clearer. This is not advice; it is simply a record of what I am learning and testing.
The Role of Inducement in a Trading Plan
A common question many traders start with is, what is a forex trading plan? In my view, it is not just a set of rules. It is a structured decision-making process. My ongoing project is to build such a plan, step by step. With this Forex methodology that I am testing, and after establishing how to find a trading range, the next logical step is to understand inducement.
In the context of Smart Money Concepts, inducement refers to a liquidity area. It is a zone where smart money is believed to enter the market to gather enough liquidity for its next significant move. Identifying these areas is a crucial part of the methodology I am adapting. For any trader wondering how to become a successful forex trader, understanding such core concepts is fundamental, though mastery requires extensive practice.
A Practical Session on the Charts
In my recent testing session, which I recorded, I worked with the GBP/USD pair using a free back-testing software platform I have mentioned before. I must note that I forgot to save my layout from the previous session, so I had to start anew. This is a practical reminder of the importance of saving your work when using such tools.
I began from January 2nd to have enough price data to analyze. The first step was to re-establish the trading range, but this time with a deeper focus on where inducement occurs.
I started by identifying a significant low in the price. The price had later broken below this low with what is called a sweep, indicating a break of structure. This break is often where we find an inducement area. The process involves meticulously identifying the most recent high and the most recent low to frame the range.
The Interplay Between Range and Inducement
The key insight I am learning is that the trading range and inducement are deeply connected. You do not have one without the other. As the price moves, it creates pullbacks. A valid pullback, in this methodology, is a specific candle pattern that breaks a previous candle’s low. The most recent valid pullback helps us spot the inducement level. The video here will show the exact process with the explanation.
In my session, I marked a low and then looked for the most recent pullback from that low. The point where that pullback ended became my inducement level. I learned that there are two types of inducement: major and minor.
A major inducement is the one I am interested in for taking trades. It typically sits at a key level, like an external high or low of the range, or it forms after a break of structure. A minor inducement, which forms before a break, is one I generally avoid. This distinction helps filter out weaker trade setups and is a vital part of building a disciplined forex trading plan.
How Inducement Guides the Trading Range
As the price action continued in my test, I saw the original low of the range get broken. This event, especially if it hits a major inducement, signals a change of character. It means the market sentiment may be shifting from bullish to bearish, or vice versa.
When this change happens, the old range is invalidated, and a new one must be drawn. In a shift to bearish sentiment, for example, the high of the old range becomes a fixed point, and you begin searching for the new low of the range by again looking for the most recent valid pullback and its associated inducement.
This process of continuously updating the range based on breaks of structure and confirmed inducements is the core of what I am testing. It is a dynamic process that requires constant attention to the chart. For me, this is the answer to how to become a successful forex trader—not through a single secret, but through a systematic, mechanical, and repeatable process.
Moving Forward to Points of Interest
By the end of my session, I had identified a new trading range with a confirmed major inducement. The next step in this evolving forex trading plan is to identify Points of Interest, or POIs, within this range. These are specific areas, like order blocks or liquidity pools, where the price is more likely to react.
The original Smart Money Concepts methodology describes a detailed hierarchy of these POIs. In my own adaptation, I plan to simplify this and focus primarily on what are called extreme order blocks or rejection zones. I will document my testing of this approach in a future post, as I continue to learn what works for me in this complex market.
The Investor
Sunday 5 October 2025
About The Author
I started to look into individual stocks in January 2022. I created this diary initially for myself to track my investing progress, and second, as a place where I can share my ideas publicly, not only on stock investment, but on any venture that I start learning, such as Forex Trading, Blogging, or any other future venture that I might think of trying out.
By repeating things I learn to myself and trying to explain it to others, I help myself better understand what I am learning. Additionally, hoping that others will share their ideas and learn from each other, and lastly as an online business where some links that I share are affiliate links, and if anybody bought anything by clicking tihose links, I will get a commission based on that successful sale, which of course will not affect the price that you are buying the product or service at.
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This blog is also part of my blogging learning project. I’m using a platform to learn this part. If you are interested in it, it is called Wealthy Affiliate.
Furthermore, this site is in no way or form giving any financial or investing advice, nor is it encouraging or discouraging people to buy or sell any financial instrument. This is a personal diary in which I track my own progress and share it for informational, educational, and entertainment purposes.