Order blocks are price areas where institutional traders have placed significant buy or sell orders, creating support and resistance levels that can lead to breakouts. They are identified by looking at previous price reactions and used as entry or exit points for trades. In this guide, you can find the details, how to find it and what you should pay attention to when trading. Including tips!
Key Point
Summary
What are Order Blocks?
Areas on a chart where significant buying or selling has occurred, usually indicated by a cluster of large candlesticks.
How to Identify Order Blocks
Look for clusters of unusually large bullish or bearish candlesticks near swing points. These show strong rejection of price.
Types of Order Blocks
Bullish order blocks indicate strong buying interest. Bearish order blocks show strong selling pressure.
How to Trade Order Blocks
Buy near bullish order blocks in uptrend. Sell near bearish order blocks in downtrend. Set stop loss beyond order block.
Using Order Blocks
Indicates strong areas of support/resistance. Shows where institutions are actively trading. Defines trade entries and stop losses.
Limitations
Not all order blocks act as strong S/R levels. Can take time to form on charts. Require other confirmations.
The Order Block and its key points are explained in this table.
You will learn:
What are the types of order blocks and how to spot them on the chart?
How to use order blocks to find high-probability trade entries and exits?
How to avoid common misconceptions and mistakes when trading with order blocks?
Examples of order block trades.
How to master this strategy and find your own style?
Whate is Order Block?
Forex is fast and competitive. You need an edge to succeed. One such edge is the Order Block, an area where the market changed its mind. These blocks show strong supply or demand.
When the market breaks them, it means big traders are moving. This can start a powerful trend. They are not random.
Trading in them lets you understand other traders better. By finding and studying them, you can trade smarter. If you want a simple and effective way to use them in forex, you are in the right place.
Order Block is the last reversal candle that changes the trend. For example, if the price is going up, then down, OB is the last green candle. The opposite is true if the price is going down, then up. OB is the last red candle.
Some traders have different views on the candle color. They match it with the break direction, that is, they say if the price breaks down, OB is the last red candle. I think both green and red candles work. The important thing is that the zone works.
If you know about liquidity, it is best to use a lower time frame when the price reaches the zone and trade after liquidity is taken. This gives you a good entry.
Supply&Demand Trades with Order Blocks
How to Identify Order Blocks?
There are a few different ways to identify order blocks on your charts. One way is to look for areas where the price has consolidated for a period of time.
These areas are often areas where institutional traders are accumulating or distributing positions.
Another way to identify order blocks is to look for areas where the price has made a sharp reversal. These reversals can be caused by institutional traders taking profits or cutting losses. Additionally, consider candlestick patterns as confirmation signals.
Dig deeper: These two issues are like the heartbeats of the matter. Let’s give them some extra attention:
A bullish order block is an area where there has been a large concentration of buy orders in the past. It is usually formed after a downtrend or a pullback in an uptrend.
It is marked by a candlestick that closes higher than the previous candlestick, indicating that the buyers have taken control of the market. The low of this candlestick is the bottom of the bullish order block.
Bullish Order Block Demand Zone
Bearish OB:
A bearish order block is an area where there has been a large concentration of sell orders in the past. It is usually formed after an uptrend or a pullback in a downtrend.
It is marked by a candlestick that closes lower than the previous candlestick, indicating that the sellers have taken control of the market. The high of this candlestick is the top of the bearish order block.
How to Trade Order Blocks?
Now, let’s get practical. The best way to trade order blocks profitably is to wait for a breakout from the order block. Once the price breaks out, you can enter a trade in the direction of the breakout.
When you’ve pinpointed an Order Block, how do you trade it effectively?
Here is an example of a bearish order block on the US100/USD daily chart:
As you can see, after an uptrend, the price formed a bearish candlestick that closed lower than the previous one. The high of this candlestick is marked as the top of the bearish order block. This level acted as supply when the price retested it later.
The area of the last green candle did not work properly. But the last red candle succeeded. But with the last falling red candle, it was formed worked well. This is what I meant when I described it above.
You need to understand the logic and check the areas in lower time frames. A more accurate way to find order blocks with a good chance of success is the group of candles that clear liquidity and cause a change in market trend.
Entry: Enter a trade when price approaches an Order Block. This can be a pending order or a market order, depending on your strategy.
Take-Profit (TP): Every swing left behind by the price as it moves up or moves down is an ideal TP place. In other words, every demand or supply zone.
Stop-Loss (SL): Place your stop-loss order below the Order Block if you’re buying, or above it if you’re selling. This helps limit potential losses.
Examples of Order Block:
I’m keen on presenting an example of OB, but from a unique and significant viewpoint.
Order Block Reacts More Strongly to Liquidity Sweeps A liquidity sweep is a type of market order where the trader attempts to take as much liquidity as possible from the market across multiple price levels to fulfill their order.
On the other hand, an OB is a price zone where a significant amount of initial orders were filled to move the price in a particular direction.
If this sweep happens at an OB, it can cause significant price movements. This is because the OB represents a concentration of liquidity – a large number of orders concentrated within a relatively small price range. When the liquidity sweep hits the OB, it consumes the liquidity at that level.
This can lead to an imbalance between supply and demand in the market, causing prices to move more significantly than they would under normal market conditions.
This interaction between liquidity sweeps and OB can create opportunities. Traders who can accurately predict and identify these interactions may be able to take advantage of the resulting price movements for profit.
6 Top Tips of OB:
It must break the market. So we find a Market Structture Break (MSB).
If the market breaks with momentum candles after OB, an imbalance occurs here, which is called FVG. This formation makes OB quality.
A better way to find order blocks with a high chance of success is to check the liquidity sweeps. OB with cleared liquidity is more trustworthy.
Entry and Exit Game: They are places on the chart where many orders are waiting. They can move the price up or down. You can use them to decide when to buy or sell currencies. Buy when the price goes up from an order block, and sell when it goes down. Also, set a stop-loss to limit your losses if the trade goes bad. That’s how you trade with order blocks.
Go Multitimeframe: Don’t just focus on one timeframe. Check out order blocks on multiple timeframes. What looks like a big deal on a daily chart might not matter on the hourly chart. It’s like using different lenses for a clearer view.
Get Friendly with Market Structure: Get cozy with market structure lingo. You’ll want to understand higher highs, lower lows, and those support and resistance levels. It’s like learning the ABCs of price action.
Common Misconceptions When Trading with Order Blocks
Let’s clear the air and address some common misconceptions about Order Blocks:
Retests of an order block is a valid trade entry: Freshness of zones is the number one key. So, even if there are too many retests, the chances for trading decrease.
OB is alone guarantee profits: Not every trade with an order block will be profitable. Sometimes, the price can move against your trade and hit your stop-loss.
OB is just support and resistance levels: It goes beyond simple support and resistance. It represents areas where significant institutional orders were executed, offering valuable insights into market sentiment.
How to Master This Strategy and Find Your Own Trading Style
Order Block is not just about price action; it’s about understanding the psychology of the market. As you enter trades at these critical levels, you’re positioning yourself alongside traders who recognize the significance of Order Blocks. This shared sentiment can work in your favor.
One of the things that I have learned over the years is that is a psychological battlefield.
It is important to find a strategy that suits your personality and risk tolerance. Finally, it is important to remember that is not about being right. It is about being profitable.
There are many times when you will be wrong in your trading decisions. However, if you can manage your risk effectively, you can still be profitable.
I have failed many times in the beginning, but I never gave up on learning and improving my skills. As I learned the concepts, I immediately applied them to my practice.
I found out that when I combined the concepts with my own characteristics, they worked better for me and helped me with risk management. I encourage you to do the same.
Don’t just copy this strategy blindly, but try to understand it and adapt it to your own style. You may find that some aspects of this strategy work better for you than others, or that you need to tweak some parameters to suit your preferences.
The best way to master this strategy is to practice it on a demo account first, and then on a live account with small amounts.
You should also backtest this strategy on historical data to see how it performed in different market conditions. This will help you gain confidence and consistency.
Remember that is a psychological battlefield, and you need to discover your own strengths and weaknesses. You need to be disciplined, patient, and confident in your decisions.
You also need to be humble, flexible, and willing to learn from your mistakes.
Conclusion:
This is a simple and effective strategy that can help you find high-probability trade entries and exits based on price action. If you master this strategy, you can become a successful trader who can take advantage of the opportunities created by large market participants.
They provide insights into market sentiment, and when used correctly, they can lead to profitable trades. Don’t wait for the market to make the next move—take control with OBs.
Start incorporating Order Blocks into your strategy and unlock their potential today. But remember, this journey is not about overnight success. It’s about continuous improvement, adapting to market conditions, and discovering your own style.
questionsIs a breaker block the same as an order block?
No, a Breaker Block (BB) and an Order Block are not the same. The BB is a trend-breaking candlestick. OB is the candlestick in the last swing before the market breakout. So when you’re looking for OB, you have to think,“If the market is reversing, what was this manipulative order?” The second tip is, BB comes first, OB after.
Is the quality of the OBs better when they are in the Kill Zone during the London and New York sessions?
Exactly, it may indicate a higher probability of success.
Sometimes the price turns before it reaches the OB and leaves without me. Why does this happen?
Because OB has been mitigated. If the area is mitige and there are structures such as FTR-FO, the price will most likely settle there for testing.
How can I stay disciplined when trading with OBs?
Maintaining discipline is vital for successful trading.Create a plan that includes specific entry and exit criteria based on OBs, and follow it rigorously.
Can they be used in different markets?
Yes, they can be used in different markets, such as forex, stocks, commodities, etc., as they can help traders identify high-probability reversal zones and trade with the smart money.
Are they a guaranteed path to success in Forex?
No, success requires continuous learning, adaptability, and risk management. Never stop learning to increase your chances of success. You can watch it in its most detailed form in this video.
Brian Miller is a Forex trader who uses price action, a method based on real prices instead of indicators. He learned this technique from hedge fund experts and has been trading full-time since 2011. He has a finance degree and writes about Forex on various websites. On this website, he shows his price action system and how it works in different markets.
