How To Identify High Quality Order Blocks to trade (Advanced tutorial)-Order Block Trading Strategy

New Section

In this tutorial, we will explore the concept of order blocks in trading and learn how to identify high-quality ones. The different types of order blocks will be discussed, along with entry and exit models that leverage order blocks in the market.

Major Types of Order Blocks

• Standard Order Block: Refers to the zone corresponding to the last bullish candle before a sharp downward movement. It is believed to represent manipulation areas formed just before significant market movements. By using these zones in our trading strategy, we can potentially take advantage of price reversals.

• Example of a standard order block formation.

• Primary Impulse Order Block: Occurs when the price fails to initiate a strong or significant movement after changing its primary direction. It represents a point where the market exhibited a lack of momentum, potentially indicating a reversal or change in market sentiment.

• Example of a primary impulse order block formation.

• WIC-based Order Block: Occurs when the shadow or wick of the last buying candle or first weak bullish candle is greater than half the size of the entire candle. This provides an optimized and smaller zone compared to considering the entire candle size as an area of interest.

• Example of a wic-based order block formation.

• Engulfed Order Block: Occurs when the entire body of the last bullish candle is completely engulfed by the subsequent bearish candle. This indicates a strong influx of selling pressure followed by a significant downward movement.

• Example of an engulfed order block formation.

Conclusion

Understanding and identifying valid and high-quality order blocks are crucial for successful trading. By recognizing different types of order blocks and their formations, traders can potentially take advantage of high-probability trading opportunities.

New Section

This section focuses on different types of order blocks and their significance in the market structure.

Types of Order Blocks

• Breaker Block: A failed order block that has been broken through and turned into another supply or demand area on the chart. It is most effective when price breaks through it with large momentum candles and a small pullback.

• Mid Movement Pivot Order Block: Refers to the formation of an opposite colored candle within a strong bullish or bearish movement. These zones act as potential reversal areas where price has a tendency to reverse and change direction upon reaching them.

New Section

This section discusses entry models that can be incorporated into trading plans using order blocks, as well as the importance of backtesting strategies.

Entry Models Using Order Blocks

• Wick Entry: Placing buy or sell orders directly on the wick of a valid order block. Stop loss is placed above the higher wick for sell positions. Provides a wider stop-loss margin but increases the probability of triggering the order.

• Body Entry: Placing entry based on the body of the candle within an order block. Stop loss is set above the higher wick of the order block. Offers a higher reward-to-risk ratio compared to wick entry but carries slightly higher risk.

• Midpoint Entry: Placing entry at the midpoint of the order block zone. Stop loss is positioned above the highest point of the order block. Offers a reward-to-risk ratio at least twice as large as regular entry types due to refined entry point and smaller stop loss size. Preferred approach by many traders.

New Section

This section emphasizes the importance of backtesting trading strategies before using them in a real account.

Backtesting Strategies

• Backtesting involves testing a strategy at least 100 times to gain insights and enhance trading strategies. Factors like market conditions, trader psychology, risk management, and time frame influence a strategy's win rate.

• The Trader Edge platform is recommended for backtesting exclusive trading strategies and setups.

New Section

This section provides an overview of the four primary types of entries that can be employed when executing trades using order blocks.

Types of Entries Using Order Blocks

• The selection of a specific entry type depends on various market factors such as movement sessions, volatility, and other relevant factors.

• Four primary types of entries: Wick Entry, Body Entry, Midpoint Entry (preferred approach), and other entry types based on individual preferences and trading plans.

Order Blocks: Identifying High Quality Zones

In this section, the speaker discusses the fourth entry type involving placing an entry based on the body of the candle once a valid order block is identified. The stop loss is set to touch the higher Wick of the order block. This entry type is riskier as the stop loss is positioned within the order block Zone.

Identifying High Quality Order Blocks

• A high-quality order block must leave a significant inefficiency behind, which refers to an imbalance between buyers and sellers in the market resulting in a gap within the candles.

• A high-quality order block must lead to a break of structure or a change of character in the market, indicating whether it will continue in its initial direction or experience a reversal.

• Price must sweep a liquidity zone before reaching the order block to increase reliability and validity. Liquidity zones are areas where large pools of money are resting, such as stop losses and buy/sell orders.

• Sweeping liquidity before reaching an order block indicates higher probability of success, as price relies on liquidity to sustain its movement. If price fails to sweep liquidity before reaching an order block, there's a greater chance it will utilize that zone as a source of liquidity for momentum.

Trading Opportunities with Order Blocks

• Order blocks are considered one-time use; once mitigated (price moves beyond its boundaries), they lose their significance as trading areas. Subsequent retests may not yield similar trading opportunities as the initial entry.

Conclusion

In this video, we have covered essential aspects of identifying high-quality order blocks in the market and recognizing their significance as potential turning points or areas of interest for trading decisions. Different entry types with order blocks were also explored. Advanced order block entry models and trading strategies will be discussed in future episodes.