Order Blocks (How To Use Them In Trading)
Definition Of Order Blocks:
* An order block is a defined area where buyers or sellers of smart money entered market & moved price away from its price level to a new area of interest.
Why Order Blocks:
* The market is engineered by smart money by means of creating levels within the market place for them to use at a later date and time.
How To Identify Order Blocks:
* An order block can be identified by specific candlestick or bar that when viewed in institutional context, can highlight smart money buying and selling.
Order Blocks:
* Apart from commonly used supply and demand zones, order block are very specific levels that can be refined to lower time frame to exact price levels.
Bullish Order Block:
* A bullish order block is the last bearish candle prior to the move up. (see chart)
Bearish Order Block:
* A bearish order block is the last bullish candle prior to the move down. (see chart)
Trading With Order Blocks (TIPS):
1) Higher time frame market structure is in focus( I would use 1 hr or higher, attached chart is weekly order blocks).
2) Select an order block with largest body and shortest wicks.
3) When price is retesting an order block expect a price to bounce off at higher of bullish order block or lower of bearish order block, but middle of the order block is the last point of retracement when looking for entries, if price breaks the order block then find another order block.
4) Just like other natural support and resistance, before trading to the actual order block and reverse, most of the time price will fake the reversal then continue to an order block.
5) Stop loss is placed just above bearish order blocks and below bullish order blocks.
6) When major high/low is formed, look for fair value order block in middle of range to enter a trade, price should not retest highest/lowest order block.
7) Use other indicators like Fibonacci, moving averages, support and resistance, pivot points etc... to confirm your trading decision.
8) Always look left on charts to see if current price range is hitting or inside of a previous order block (these levels are important).
* An order block is a defined area where buyers or sellers of smart money entered market & moved price away from its price level to a new area of interest.
Why Order Blocks:
* The market is engineered by smart money by means of creating levels within the market place for them to use at a later date and time.
How To Identify Order Blocks:
* An order block can be identified by specific candlestick or bar that when viewed in institutional context, can highlight smart money buying and selling.
Order Blocks:
* Apart from commonly used supply and demand zones, order block are very specific levels that can be refined to lower time frame to exact price levels.
Bullish Order Block:
* A bullish order block is the last bearish candle prior to the move up. (see chart)
Bearish Order Block:
* A bearish order block is the last bullish candle prior to the move down. (see chart)
Trading With Order Blocks (TIPS):
1) Higher time frame market structure is in focus( I would use 1 hr or higher, attached chart is weekly order blocks).
2) Select an order block with largest body and shortest wicks.
3) When price is retesting an order block expect a price to bounce off at higher of bullish order block or lower of bearish order block, but middle of the order block is the last point of retracement when looking for entries, if price breaks the order block then find another order block.
4) Just like other natural support and resistance, before trading to the actual order block and reverse, most of the time price will fake the reversal then continue to an order block.
5) Stop loss is placed just above bearish order blocks and below bullish order blocks.
6) When major high/low is formed, look for fair value order block in middle of range to enter a trade, price should not retest highest/lowest order block.
7) Use other indicators like Fibonacci, moving averages, support and resistance, pivot points etc... to confirm your trading decision.
8) Always look left on charts to see if current price range is hitting or inside of a previous order block (these levels are important).