Order Blocks
Order blocks are commonly overused and misconceived. We’ll teach you how we find them whilst eliminating a lot of the noise whilst understanding the safest way we can trade them. We also touch upon order block refinement and over refinement within the market.
Order blocks are a key section of our technical strategy.
Order blocks are considered a market behaviour that indicates the pile-up of orders from banks and institutions.
Similar to what we covered in the liquidity section, we can use order blocks to our advantage.
- We can use Order Blocks to avoid trading setups that could result in -1% losses.
- We can use Order Blocks to highlight areas where the market needs to pull back to. Therefore identifying areas where trends can change.
- We can use Order Blocks to understand where to place entries and stop losses. Greatly enhancing our accuracy on the charts.
The problem is, order blocks could be identified in all areas of the market.
At the end of the day, every candle stick within the markets are orders piled on top of orders. So which order blocks are the ones we really need to focus on?
As a general rule the most probable order blocks will be:
- The last bullish candle before a clear break of minor or major structure to the downside (short)
- The last bearish candle before a clear break of minor or major structure to the upside (long)
Whittling orders down to these set rules we can eliminate the noise and focus 100% on orders that repeat themselves time and time again. Therefore making the areas of interest to trade mechanical.
We need to get into the mindset of … ‘If this occurs in the market look for this’
However, even using this methodology will still mean there could be orders sat on the 4hr candle, 1hr candle maybe 30 min or 15 min candle? So how do we distinguish which one to trade from once we have highlighted an area of orders?
I use a simple method to get around this.
https://www.tradingview.com/x/xY5HjQRU/
This is a great example found on AUDUSD.
I have drawn out both the last 4hr down candle and the last 1hr down candle.
You see how the two overlap each other?
Now do you trade from the 4hr hr candle or the 1hr candle to get involved within the long?
The best traders will stick their orders within the area of the market where there is the highest probability of seeing a rejection.
So in this example, it would be safe to be say if we drew out the 50% of the 4hr OB then our entry will be close to the 1hr orders whilst our stop loss would still be close enough to have protection from the bottom of the 4hr OB.
https://www.tradingview.com/x/PFxMRFC8/
You see how the 50% of the 4hr orders mean our entry is within the bottom quarter of the 1hr OB? If we had got in off the top of the 1hr OB with our stops just below there would be a very high chance that market manipulation would tag us out of this trade.
Like so…
https://www.tradingview.com/x/yXdLEpbA/
We want to be on the right side of the market especially when there are multiple orders sat within a section of price. In situations like this we need to hone in on the area that has the highest probability of:
-Tagging us into the move in the first place
-Is close enough to the bottom of order for protection
-Allows us to get into the move with a small enough stop loss that the position still yields an attractive RR