ORDER BLOCK,FVG & ORDER FLOW In SMC | HINDI | BANKNIFTY| LECTURE~4

What is FPG, Order Block, and Order Flow?

Introduction to Key Concepts

• The speaker introduces the lecture's focus on FPG (Fair Value Gap), order blocks, and order flow.

• Emphasizes the importance of structure mapping for understanding these concepts; without it, they may not be effective.

• Suggests that new viewers should first watch three previous lectures on SMC (Smart Money Concepts) before proceeding.

Importance of Mastering Basics

• The speaker criticizes basic concepts like internal/external liquidity and higher/lower time frame entries as overly simplistic.

• Encourages viewers to master foundational knowledge rather than feeling accomplished with superficial learning.

• Plans to start an advanced ICT series after this lecture but stresses the need for mastery of basics first.

Understanding Fair Value Gaps (FVG)

Price Action Types

• Differentiates between healthy price action (slow, steady movement) and unhealthy price action (rapid spikes).

• Describes how unhealthy price action can create significant momentum in a short time frame.

Identifying Fair Value Gaps

• Explains that fair value gaps occur during periods of unhealthy price action when large candles form quickly.

• Highlights that gaps exist between these large candles which are often overlooked by traders.

How to Identify Gaps in Candles

Steps to Identify FVG

• Instructs on identifying the highest point of the first candle and ignoring the second candle in a sequence.

• Focuses on taking the low point from the third candle to establish a gap known as FVG.

Candle Color and Size Irrelevance

• Clarifies that neither the color nor size of candles affects their identification as fair value gaps.

Inside Bar Considerations

Understanding Inside Bars

• Discusses how inside bars can complicate gap identification; if smaller candles fall within a larger one, they do not count towards forming an FVG.

Understanding Candle Patterns in Uptrends

Key Concepts of Candle Analysis

• The discussion begins with the importance of analyzing the first candle's high, skipping the second candle, and focusing on the third candle's low when identifying patterns in an uptrend.

• Emphasis is placed on recognizing that when an inside bar forms, it should be treated as a single candle for analysis purposes. Understanding this concept is crucial for effective trading strategies.

• The speaker reiterates that if there is no meeting point between the first candle's high and the third candle's low, it indicates a valid setup. This gap signifies potential trading opportunities.

• A clear distinction is made regarding when to consider a valid FG (Fibonacci Gap). If the first candle’s high meets with the third candle’s low, it should be skipped as it does not represent a valid opportunity.

• The explanation continues by highlighting how gaps between candles can indicate potential trades. A gap suggests that price has not met certain levels, which can be leveraged for future trades.

Valid vs Invalid FGs

• The speaker clarifies what constitutes valid and invalid FGs within inside bars. Understanding these distinctions helps traders make informed decisions based on market behavior.

• Discussion shifts to larger FGs versus smaller ones. Larger FGs are deemed more powerful due to significant imbalances in orders, while smaller ones may still yield results but are less impactful.

• It’s noted that both large and small FGs can lead to substantial price movements; however, larger gaps tend to have stronger momentum associated with them.

Trading Strategies Based on Price Action

• As price approaches identified FGs during downtrends or corrections, traders must assess which levels will likely hold or break based on previous discussions about order flow and market structure.

• Patience is emphasized as key in mastering these concepts. The speaker promises unique insights into advanced trading techniques not commonly taught elsewhere.

Advanced Concepts: Order Blocks and Liquidity

• Introduction of advanced topics such as mitigation blocks and liquidity voids. These concepts are essential for understanding deeper market mechanics beyond basic candlestick analysis.

• The speaker outlines plans to cover various blocks like rejection blocks and liquidity pools in future lessons, indicating a comprehensive approach to trading education.

Structure of Market Movements

• Analyzing market structure reveals higher highs being confirmed through specific indicators like IDM (Immediate Demand Model), which assists traders in identifying entry points effectively.

• Traders are advised to find FGs between higher lows after confirming higher highs through IDM signals. This strategy aims at maximizing profit potential during upward trends while minimizing risk exposure.

Understanding Downside Trading Strategies

Key Concepts in Downside Trading

• The downside strategy involves focusing on the first candle's low, skipping the second candle, and then considering the third candle's high. This is a reversal of the approach used in an uptrend.

• In a downtrend, after skipping the second candle, traders look at the third candle's high instead of its low as seen in an uptrend. This highlights how strategies differ based on market trends.

• The gap between candles is referred to as FG (Fibonacci Gap), which will be elaborated upon in future lessons. Understanding this gap is crucial for mapping price movements.

Structure Mapping and Price Movements

• The IDM (Initial Demand Model) confirms lower lows within a downtrend structure. It indicates where price drops are expected to occur based on previous highs and lows.

• Once a lower low is confirmed through IDM, it sets up expectations for further price movement from that point downward until reaching a new lower high.

Analyzing Charts for Better Understanding

• Traders need to identify FG between lower lows and higher highs during different market conditions. This understanding aids in predicting potential price movements effectively.

• When analyzing charts, it's essential to observe how prices interact with identified FGs—whether they tap into these gaps before moving downward or upward.

Entry Points and Confirmation Signals

• The first entry point occurs when prices tap into an identified FG after confirming IDM structures. This interaction often leads to significant price drops.

• A confirmation of lower highs following an IDM signal indicates that traders should wait for additional confirmations before making further trades or entries.

Avoiding Misinterpretations

• It's important not to assume that every drop signifies a confirmed lower low; proper structure mapping must be applied to avoid false signals.

• Lower lows are only confirmed when specific criteria are met regarding body closures and swing points; otherwise, they should be avoided as potential trading opportunities.

Mastering Structure Mapping

• Continuous practice with structure mapping will help traders understand market dynamics better and recognize valid entry points more accurately over time.

Understanding Order Blocks and Market Structure

Introduction to Order Blocks

• The discussion begins with the importance of learning about order blocks and order flow to enhance market understanding.

• An order block is defined as a candle that contains a significant amount of orders placed by major players in the market.

Identifying Market Structure

• The process of identifying an IDM (Initial Demand Model) is crucial, which leads to the creation of higher highs in price movement.

• After establishing an IDM, traders look for FGs (Fair Value Gaps) between the IDM and higher lows, emphasizing that no other structures should be found in this range.

Characteristics of Order Blocks

• An order block is characterized by a large buying activity following a last selling candle; this indicates potential upward price movement.

• Specific rules govern how to identify valid order blocks, including not marking them directly without adhering to these rules.

Rules for Validating Order Blocks

• The color of the candle does not matter when identifying an order block; both red and black candles can qualify.

• It’s essential to capture the last selling candle rather than any buying candles within an uptrend scenario.

Conditions for Valid Order Blocks

• For an order block to be valid, it must have FG above it; if there’s no FG present, then it cannot be considered valid.

• In cases where the initial identified order block lacks FG, traders may need to shift their focus to subsequent candles for validation.

Advanced Concepts in Order Block Analysis

• The discussion delves deeper into how inside bar concepts relate to identifying effective order blocks.

• Emphasis is placed on ensuring that only last selling candles are used for identification purposes while disregarding those without FG.

Multiple Order Blocks Scenario

• When multiple order blocks exist within close proximity after significant buying activity, determining which one will be tapped becomes critical.

Understanding Order Blocks in Trading

Key Concepts of Order Blocks

• The discussion begins with the identification of order blocks, specifically focusing on the last selling candle and its significance in determining price action. The concept of demand is introduced as a critical factor.

• It is emphasized that not all order blocks are equal; some may not hold value. A distinction is made between actual buying and temporary price movements that do not lead to sustained buying.

• The speaker explains how multiple order blocks can form simultaneously, leading to complex trading conditions. Understanding which order block to prioritize becomes essential for effective trading strategies.

Rules Governing Order Blocks

• The first rule states that the last selling candle must have an above average volume (AFG). This means that if a candle does not meet this criterion, it cannot be considered a valid order block.

• Color of the candles does not matter when identifying order blocks; what matters is their position relative to volume levels. A valid order block must be formed by a last selling candle with sufficient volume above it.

• The third rule highlights that in an uptrend, the last selling candle should be identified correctly to determine potential reversal points or continuation patterns.

Identifying Effective Order Blocks

• Not every volume level (FG or FPG) needs attention; only those combined with relevant order blocks should be prioritized for trading decisions.

• Advanced concepts such as rejection blocks and mitigation blocks are mentioned but will be explored further in future lectures focused on ICT concepts and criteria for these advanced structures.

Practical Application of Order Block Theory

• Emphasis is placed on respecting only significant price levels associated with valid order blocks while disregarding irrelevant ones during analysis.

• Common mistakes among traders include misidentifying the last selling candle based on color rather than actual price action and volume dynamics.

• An explanation follows regarding inside bars within an order block context, detailing how they can influence trading decisions based on their structure and positioning relative to other candles.

Downtrend Analysis

• Transitioning into downtrends, the speaker outlines how prices behave differently compared to uptrends, emphasizing lower lows and higher highs as key indicators for traders to watch closely.

Understanding Order Blocks and IDM in Trading

Introduction to Order Blocks

• The discussion begins with identifying the range for finding order blocks, emphasizing the creation of a new IDM (Internal Demand Model).

• It is noted that due to the IDM, lower lows will be confirmed. The focus is on finding order blocks within this range, similar to how FPG (Fair Price Gap) was previously identified.

Criteria for Identifying Order Blocks

• The criteria for identifying order blocks are explained, highlighting the importance of recognizing the last buying candle as an order block during downtrends.

• In downtrends, the last buying candle represents the order block where significant selling occurred. This mirrors uptrends where the last selling candle indicates an order block.

Rules Governing Order Blocks

• The rules state that an order block must be below an FPG; if not present, adjustments need to be made in analysis.

• If there’s no FPG below an identified order block, it may need to be shifted based on available data points.

Adjusting Analysis Based on Market Conditions

• When analyzing market conditions without a valid FPG beneath an order block, traders should consider shifting their focus to other relevant candles.

• If further downward movement occurs without a valid FPG, traders should continue adjusting their analysis accordingly.

Color Significance in Candles

• Candle colors can change; sometimes a last buying candle may appear red (indicating selling pressure), but overall buying activity might still dominate.

• The color of the order block does not matter as much as its position relative to price movements and previous trading activity.

Summary of Key Concepts

• All rules regarding last buying and selling candles have been outlined. Understanding these concepts is crucial before moving onto practical chart analysis.

• A detailed explanation follows about how swings are identified and how they relate back to previous price actions and trends.

Practical Application on Charts

• Traders are encouraged to look at specific swing highs and lows when identifying potential entry points based on past price action.

• Multiple order blocks can form after significant buying or selling events; understanding their sequence helps in predicting future movements.

Final Thoughts on Order Block Strategy

• Emphasis is placed on knowing which specific order blocks work best under certain conditions while disregarding irrelevant ones.

• A final note highlights that both order blocks and FPG play critical roles in determining entry points for trades.

How to Mark Order Blocks in Trading

Understanding Order Blocks

• The process of marking order blocks involves identifying the last buying candle during a downtrend, which is crucial for determining entry points.

• In the example provided, the blue candle is identified as the last buying candle; however, it lacks an FPG (Fair Price Gap) below it, necessitating a shift to a black candle for accurate marking.

• The selected order block must have an FPG beneath it. The price taps this FPG before moving downward, indicating a potential entry point and stop-loss placement.

Identifying Multiple Order Blocks

• A clear distinction between lower lows and IDM (Internal Demand Model) helps identify normal order blocks effectively.

• Two order blocks are present; however, only one is utilized by the price action. The first order block is confirmed as valid due to its proximity to an FPG.

• The logic behind selecting specific FPGs involves ensuring that they align with valid candles. If no FPG exists above or below certain candles, adjustments must be made accordingly.

Price Action and Its Implications

• Price behavior indicates that it often taps into established order blocks before moving in a particular direction. This reinforces the importance of understanding where these blocks lie.

• Various types of market structures such as mitigation blocks and liquidity voids also play significant roles in trading strategies but require deeper exploration within ICT (Inner Circle Trader).

Transitioning to Order Flow Analysis

• After grasping order block concepts, attention shifts towards understanding order flow dynamics and how they influence trading decisions.

• In an uptrend scenario, multiple pullbacks occur without any IDM formations. Recognizing these patterns aids in effective trend analysis.

Analyzing Pullbacks in Uptrends

• Four distinct pullbacks are identified within the uptrend context; each serves as critical markers for potential selling opportunities.

• Emphasis on recognizing selling pullbacks rather than buying ones highlights their significance in maintaining trend integrity during upward movements.

• Understanding how price interacts with these pullbacks provides insights into future price actions and reinforces the necessity of monitoring both order flow and existing market structures.

Understanding Order Flow Dynamics

Key Concepts of Order Flow

• The discussion begins with the concept of order flow, emphasizing that the first order flow is always an IDM (Initial Demand Movement), which acts as a pullback.

• It highlights how price interacts with different selling pullbacks and identifies which ones are tapped by the price movement.

• The speaker explains that certain order flows have been tapped, indicating that they no longer hold significance in influencing price direction.

Analyzing Price Movements

• A critical observation is made about remaining untapped order flows; only one significant order flow remains to be tapped before the price moves upward.

• The logic behind which order flows work effectively versus those that do not is discussed, providing insight into market behavior during downtrends.

Downtrend vs. Uptrend Dynamics

• In downtrends, the last buying pullback becomes crucial for analysis, contrasting it with uptrends where selling pullbacks are emphasized.

• The importance of identifying extreme points in order flows is reiterated; these points dictate future price movements after tapping occurs.

Identifying Untapped Order Flows

• The speaker stresses that after all previous order flows have been tapped, any remaining untapped orders will likely influence downward price movement significantly.

• A reminder is given to differentiate between selling and buying pullbacks based on market trends to avoid confusion in analysis.

Practical Application on Charts

• Transitioning to practical application, the speaker plans to illustrate how these concepts manifest on charts and their implications for high-probability setups.

• Emphasis is placed on understanding structures within downtrends and recognizing key elements like last buying pullbacks and their roles in market dynamics.

Inside Bar Analysis

• An inside bar pattern is introduced as a significant factor; it indicates potential resistance or support levels based on its position relative to other candles.

• Further exploration of last buying pullbacks reveals their relationship with overall market structure and how they can signal future movements when properly identified.

Understanding Order Blocks and Refinement Techniques

Introduction to Order Blocks

• The discussion begins with the concept of tapping into order blocks during pullbacks, emphasizing the importance of understanding which order flows work effectively.

• A brief overview is provided on combining order blocks with structure mapping, highlighting the need to identify effective order flows.

Refining Order Blocks

• The speaker introduces the idea of refining order blocks, particularly when analyzing higher time frames such as 30 minutes or 1 hour.

• An example is given where a four-hour order block is marked, illustrating that larger stop losses can pose significant problems in trading strategies.

Practical Application of Refinement

• To mitigate large stop losses, traders are advised to mark larger order blocks and then shift to lower time frames to find smaller, more manageable stop loss levels.

• By moving from a 15-minute frame down to a 5-minute frame, traders can reduce their stop loss from 200 points to just 25 points.

Logic Behind Stop Loss Reduction

• This technique not only reduces risk but also enhances potential rewards in trades across various markets, including Indian markets.

• The speaker explains how bearish and bullish scenarios affect the identification of order blocks based on previous candle highs and lows.

Visualizing Refined Order Blocks

• A practical demonstration using charts illustrates how refined order blocks operate within specific market conditions.

• The analysis focuses on Bank Nifty's chart at a 30-minute timeframe, showcasing an initial large order block with a significant stop loss.

Finding Smaller Order Blocks

• Transitioning to a lower timeframe allows for identifying smaller order blocks within larger ones. This process helps in reducing overall risk exposure.

• An example highlights how refining an initial 135-point stop loss down to approximately 30 points significantly improves trade management.

Conclusion: Benefits of Refining Order Blocks

Understanding Stop Loss and Reward Ratios

Key Concepts of Stop Loss and Reward

• The discussion highlights the importance of a stop loss set at 20 points, which directly impacts the reward ratio, allowing for a potential benefit of 70 points.

• The adjustment in stop loss leads to an improved reward-to-risk ratio, exemplified by ratios like 1:5 or 1:1.

• Emphasis is placed on understanding concepts such as order blocks, order flow, and refined orders to enhance trading strategies.

Next Steps in Learning

• Following the completion of foundational concepts, the next part will cover internal and external liquidity.

• There will be a focus on planning entries based on higher and lower time frames to refine trading approaches further.

Engagement and Future Content

Community Interaction

• The speaker encourages audience engagement by requesting 1000 likes for continued content delivery; currently at 971 likes.