Order block

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Order block (order block) is a price range in which large players oppose trend traders. They place many small trades rather than one big one. A pattern appears on the price chart where the next candles absorb the previous ones.

Usually, after an order block, the trend reverses. Small traders who find this pattern in time have a chance to make good money, since after collecting liquidity, large players need to recoup losses from triggered stops.

What is a “block order”

What is a “block order”

A block order is a price range within which large capital, that is, large traders, place orders in the opposite direction to the trend. At the same time, they use a lot of small orders instead of one large one. Otherwise there may be strong pressure on the price. That is, you won’t be able to make money.

During trading, order blocks gradually accumulate liquidity from opposing positions. This helps banks and othersinstitutional get the required amount of assets. At the same time, there is no pressure on the price, as would be the case with one large order.

On a price chart, an order block (order block) looks like a price that first falls into an area with a large number of orders (usually a candle is formed with a very long shadow in the direction of the trend). After the quotes are returned. There is a reversal of movement.

To put it simply, such a number of limit orders are collected at support and resistance levels that ordinary players cannot pass them. They push the price in the other direction until it reaches the next resistance level. That is, during a downtrend, so many buy orders appear that they start buying en masse. In growing things it’s the other way around.

What are order blocks in trading?

If a bank or financial institutionwill post one large order against the trend, a change in the market structure may occur. This will cause a price gap (gap). If you place orders in small portions every few minutes, the movement of quotes will be smooth. This allows large players to get better financial results.

To understandYou need to know how to determine a block order: it looks different on different timeframes. For example, on M15 there are several candles in one direction at once. On larger timeframes, they will look like one large bar, which represents an order block – the initiating candle that reverses the trend.

Groups of orders from institutional investors are usually placed at the extremes of price movements. They precede the start of a new movement of quotes and take different forms. But they always have common characteristics that help to calculate them.

Orderblock may be bullish. It appears during a bearish trend and ends it. Determined by the last candle closed below the open, by the first candle closed above the open. Moreover, candle No. 2 should absorb the previous one.

What is a block order

Sometimes a bearish trend can resist. Then the pattern is formed from three candles:

  • bearish;
  • bull “top” (small body);
  • larger bullish candle engulfing the first one.

Essentially what happens is that bearish trades collide with bullish trades. There are enough of the former to resist for some time. Then purchase orders begin to dominate because there is no one to answer them. All the “bearish” liquidity is already with institutional investors.

Bearish order block in trading looks almost exactly the same. Only it opposes the “bullish” trend. One large reversal candle is formed, or two if the bulls have opened many orders.

Bearish candles extinguish the trend. As a result:

  • a long downward shadow is formed;
  • the price rolls back to the opening level.

The following blocks of orders from institutional investors continue to sink the asset.

How to find an order block

Find limit orders from institutional investors in 3 simple steps. First, it is important to wait for the engulfing pattern to appear. After this, the boundaries of the body of candle No. 1 are used to construct a square. This is how you get orderblock, a range for placing a large number of “limits”. When the price goes beyond the order block, you need to open a trade in the direction of the trend.

block order

What to pay attention to when it comes to identifying a profitable order block

There are at least 3 prerequisites for the appearance of an order block. The first is a trend. It should be:

  • long-term,
  • expressed.

For example, a trader with large capital sees a financial asset that has lost a lot in price. He begins to buy it with the help of a large number of small transactions against the trend. This is done to get a better price instead of creating a less profitable price gap.

Another factor that causes order blocks to occur is a sufficient level of liquidity. If an institutional investor enters a market that cannot cover his orders, he simply will not be able to fill his order in full. There will be no one to sell to, no one to buy from. That is, large players will create an orderblock only where there will be enough buyers and sellers to cover its numerous positions.

CouncilRating Forex: It makes sense to look for order blocks in the most volatile and liquid markets. In the case of Forex, we are talking about major pairs. First of all, about EUR – USD.

Find order block The correct time frame will help. Applications are released onto the market in groups at a certain interval. Therefore, on lower timeframes they look like separate candles. If you choose the right tick size, you will see one large candle directed against the trend.

It is important to consider: all order blocks are similar to support and resistance levels. They have the same signs: testing, rollback.

Strategies for order blocks

The strategies for rising and falling markets are the same. First you need to determine the trend, find a candle there in the opposite direction, which absorbs the previous one. Afterwards, a rectangle is formed along the boundaries of the body of the trend candle. Then you need to wait for the quotes to come out.

The price can rise and fall several times within the orderblock. This is fine. Therefore, you need to wait for the breakdown of its borders. When it occurs, a position is opened in the direction of the new trend.

Rating Forex warns: the price must be within the block order range. If at closing it goes beyond it, we have the usual trend consolidation. He will continue moving in the same direction.

Whaling”

There are legends on the Internet: large players deliberately drown small traders, breaking their stop losses in order to collect liquidity. Moreover, the “whales” allegedly intentionally find themselves at a loss, and then win back with counter orders, robbing retail clients. In fact, large players are simply trying to buy assets at a price that suits them.

Many strategies with big names are based on the theory mentioned above, offering to ride the “whales” that are drowning retail investors. Order blocks are called price manipulation. Rating Forex advice: do not use such strategies. Especially if they try to impose them for money.

Indicators for order block. What do you need to know?

To make it easier to find order block placement zones, you can use indicators. There are many of them in the public domain. For example, there is an Order Block Indicator. It has quite flexible settings. He:

  • makes it possible to display data from different timeframes;
  • clearly tied to individual candles, which, in his opinion, reflect the levels of placement of orders by large players.

Typically, one or two of the most recent order block zones are highlighted on the chart.

Another popular indicator is Order Block Breaker. This algorithm for searching “blocks” is not strictly tied to candles. At the same time it works more roughly. He doesn’t see reversal patterns either. Therefore, it should be used with caution and after careful settings.

Order Block Edge performed well on small timeframes. It identifies areas where whale orders are expected to accumulate. It is confidently used to place stops on trend reversals.

Is it worth trading on order blocks?

Trading on orderblock has several advantages. Can:

  • find good points to enter and exit the market;
  • place stops within the “whale” placement zones;
  • get more profit by entering trading earlier.

Order block combines well with pending orders. A couple of candles after it, the trend begins to reverse. You can catch this moment.

Strategies based on orderblock are suitable for different time frames, including medium-term ones. They’re just hard to find. Big players don’t want to lose money because they were figured out. Therefore, procurement schemes are often changed.

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