The importance of order blocks in forex trading cannot be overstated, which is why every forex/synthetic trader should learn how to identify order block, as this will increase your confidence in your trade entry and provide you with better accuracy in your market analysis.
Forex traders all over the world are looking for better ways to maximize their profit while minimizing their risk. The good news is that order block is one of those trading methods that provide fewer setups but higher accuracy.
In my previous article, I provided a good definition of what an order block forex is; in this article, I will focus on simple ways you can spot an order block when performing market analysis.
WHAT IS ORDER BLOCK TRADING
Order block trading is how institutional players get in and out of the market. It is a smart trading concept of focusing on the big moves, utilizing market ranges and accumulations, and taking entries at the range breakout.
Order block trading enables a trader to see the bigger market picture, giving fewer market setups for better trends that last for hours to days.
Order block trading is a reliable technical analysis method that gives a clear direction of the market-dominant trend.
When combined with other trading strategies and knowledge of the forex market structure, order block trading will boost a trader’s confidence for market entry.
HOW TO IDENTIFY ORDER BLOCK
Below are steps to take on how to identify order block:
- Learn to identify the price range on the chart preferably on higher timeframes.
- Mark the highest and lowest point of the price range with a horizontal line.
- A breakout and candle close, out of the price range signals a market entry.
BEST TIMEFRAME TO TRADE ORDER BLOCK
The forex market is highly affected by global events; this is why to be effective on order block trading, it is best traded from higher time frames, from H1 and above.
There are many failed order block on lower time frames caused by the Fundamental news release however the more stable order blocks are found on higher time frames.
So as a trader who wants to have higher rewards with lower risk, your focus should be on higher timeframes.
It is important to note that the reason order blocks are formed in the first place is because of the activities of big banks and institutions, the big banks and institutions perform market analysis on a higher timeframe and as a retail trader, you should too.
ORDER BLOCK STRATEGY
If you have ever read or seen order block structure on the chart, then you would know that order block trading is beyond a strategy. It is a major factor that influences the dominant market trend.
Order block strategy is simply identifying the accumulation of multiple market order on the chart which becomes strong zones and when broken set the dominant market trend.
It is true that order block can be traded on lower timeframes, however, it is much more stable on higher time frame since the big banks and institutions trade order block there.
Now that the above statement has been said, let me go on to order block trading strategy:
- Look out for previous highs and lows for new order block formations (preferably on higher timeframes)
- Identify the highs and lows of the recent order block (range) with horizontal lines.
- Market setup at the breakout of the range with a candle close above the block.
Order flow is simply price moving in an impulse direction (uptrend or downtrend) after the breakout from the order block pattern.
Order flow in forex always moves in the direction of the dominant trend after the order block structure has been broken.
As a trade when you master order block and order flow, it will reduce your screen time and make your trading stress free.
There is a popular saying in forex trading that says: follow the trend, the trend is your friend; order flow in forex is following the trend. When you choose not to follow the trend it becomes your enemy.
Below is an image of order flow:
ORDER BLOCK CANDLESTICK
One challenge order block traders face is identifying the actual candle that breaks the order block formation and gives a setup for market entry.
Order block candlestick is that big candle that at a single move breaks and closes above the high or low of the order block formation.
ICT ORDER BLOCK
ICT order block are orders by institutions and big banks in the forex market, these order create market consolidations and form structures that determine the dominant trend of the forex market.
These order block structures are best seen on higher timeframes, when done correctly order block trading can be a major backbone to any trading strategy.
Because ICT order block are better formed on higher time frames, it helps you as a trader to focus only on the big moves setup alone; building discipline and patience.
INSTITUTIONAL ORDER BLOCK
Institutional order block are major zones where big banks and institutions get in and out of the market.
These institutional order blocks were created by these banks in the first place, these zones become strong potential areas where these institutions look out for the big moves.