Order blocks are a concept often used in price action trading, particularly in forex and other financial markets like crypto. They represent significant areas on a price chart where institutional traders have placed large orders, causing a noticeable impact on price movement. These areas can act as support or resistance levels and are considered important reference points by many traders.
The Indicator marks out the Order blocks automatically for you, the bullish blocks are blue and the bearish ones are red, if the order block no longer has a color it’s considered a mitigated one, which means it was used already.
Here’s how you can identify and potentially trade order blocks:
- Identifying Order Blocks: Order blocks are typically identified by looking for areas on a price chart where significant buying or selling activity occurred, leading to a sharp price movement or a sudden change in direction. They often appear as strong candlestick formations with large bodies and long wicks.
- Confirmation: Once you’ve identified a potential order block, it’s essential to confirm its significance by looking for confluence with other technical indicators or price action patterns. This might include support and resistance levels, Fibonacci retracement levels, trendlines, or other key technical levels.
- Trading Order Blocks: Traders may use different strategies to trade order blocks, depending on their trading style and preferences. Here are a few common approaches:
- Breakout Trading: If an order block acts as a support or resistance level, traders might wait for a breakout above or below the block before entering a trade in the direction of the breakout.
- Pullback Trading: Some traders wait for price to retrace back to an order block after a breakout and then enter a trade in the direction of the original breakout.
- Reversal Trading: When an order block forms at the end of a trend, it may indicate a potential trend reversal. Traders might look for reversal patterns such as double tops or bottoms, head and shoulders patterns, or divergence with oscillators to confirm a reversal trade.
Remember that trading order blocks, like any trading strategy, carries inherent risks, and there’s no guarantee of success. It’s essential to combine order block analysis with other forms of technical and fundamental analysis and to adapt your approach based on market conditions.