Best Order Block Trading Strategy (Advanced)
Summary
TLDRThis video introduces an advanced smart money trading strategy called 'Order Block,' which involves identifying significant market moves and entering trades in the same direction as financial professionals. It covers key concepts like order blocks, break of structure, and change of character, and demonstrates a two-step strategy: analyzing market structure in higher time frames and waiting for a change of character in lower time frames to find entry points. The video emphasizes the importance of risk management and backtesting for successful trading.
Takeaways
- 📈 The smart money trading system is designed to follow the market movements initiated by financial professionals.
- 🔍 The 'Order Block' strategy is an advanced trading technique that identifies significant market movements and potential entry points.
- 📚 Understanding concepts like 'Order Block', 'Break of Structure', and 'Change of Character' is crucial for applying this strategy effectively.
- 📊 Order Blocks are identified as zones of optimized demand and supply that form during large capital market entries, often resulting in significant price movements.
- 📉 In a bullish scenario, the last bearish candle before a heavy bullish move is considered the Order Block Zone.
- 📈 'Break of Structure' occurs when the market breaks the most recent higher high, indicating a continued upward trend.
- 📉 'Change of Character' is identified when the market breaks the recent higher low to the downside, signaling a potential change in market direction.
- 🔑 The strategy involves two main steps: analyzing the market structure and order blocks in a higher time frame, then looking for 'Change of Character' in a lower time frame for entry points.
- ⏱ The entry time frame for trades should be at least twice as low as the analysis time frame to ensure proper strategy application.
- 🎯 Risk management is essential; traders should risk half the amount for subsequent trades after the initial 'Change of Character' entry.
- 📝 It's recommended to backtest the strategy and gain confidence before live trading, and to never have more than three open trades for the same analysis on a currency pair.
Q & A
What is the smart money trading system based on?
-The smart money trading system is based on finding the footsteps of smart capital placed in the market by financial professionals and entering the market in the same direction.
What is the 'Order Block' trading strategy?
-The 'Order Block' trading strategy is an advanced smart money trading method that involves identifying large capital movements in the market, which create demand and supply zones known as order blocks, and trading in the same direction as these movements.
What are the key smart money concepts mentioned in the script?
-The key smart money concepts mentioned are order blocks, break of structure, and change of character.
How are order blocks identified in a bullish scenario?
-In a bullish scenario, the last bearish candlestick before the start of a heavy bullish move is identified as the order block zone.
What does a 'break of structure' indicate in a trending market?
-A 'break of structure' in a trending market indicates that the market intends to continue in the same direction, especially when the latest higher high is broken to the upside.
What is meant by 'change of character' in the context of trading?
-'Change of character' refers to a situation where the market breaks the recent higher low to the downside, signaling an intention to change its direction.
What are the two steps involved in the smart money trading strategy discussed in the script?
-The two steps are: 1) Analyzing the market structure and identifying order blocks in a higher time frame, and 2) Zooming into a lower time frame to wait for a change of character and look for order block entries.
Why is it important to have an entry time frame that is at least two times lower than the analysis time frame?
-Having an entry time frame at least two times lower than the analysis time frame allows for a more detailed view of potential entry points and helps in identifying precise moments for trading based on the order block strategy.
How should a trader manage risk when using the order block strategy for multiple trades on the same currency pair?
-A trader should risk half the size for the second and third trades compared to the first trade, and should not have more than three trades open for the same analysis on a pair to manage risk effectively.
What is the significance of using Fibonacci retracement levels in certain trading scenarios as mentioned in the script?
-Fibonacci retracement levels are used when there are no clear order blocks identified in the desired time frame, allowing traders to place trades with a stop loss wider than usual, as they are entering the market earlier than the market's confirmed direction.
Why is it recommended to backtest the smart money strategy before live trading?
-Backtesting the smart money strategy helps traders gain confidence in the strategy, understand its performance on different currency pairs, and ensures that they have a proper risk management plan in place before live trading.
Outlines
🚀 Introduction to Smart Money Trading Strategy
This paragraph introduces the Smart Risk trading system, which is designed to follow the market movements initiated by financial professionals. The episode focuses on an advanced trading strategy called 'Order Block'. The strategy involves understanding smart money concepts like order block, break of structure, and change of character. The speaker encourages viewers to watch previous videos for a deeper understanding and to subscribe for more advanced trading insights. The explanation begins with identifying order blocks during significant market moves and then discusses how to recognize breaks of structure and changes of character as market signals.
📈 Executing the Smart Money Trading Strategy
This paragraph delves into the specifics of the Smart Money trading strategy, outlining a two-step process. The first step involves analyzing the market structure and identifying order blocks in a higher time frame. The second step is zooming into a lower time frame to spot a change of character and looking for order block entries. The speaker uses a four-hour chart of the New Zealand dollar as an example to illustrate the strategy. The explanation continues with the execution of trades, including placing orders, setting stop losses, and taking profit at targeted levels. The importance of risk management is emphasized, advising viewers not to exceed three open trades for the same analysis and to adjust position size accordingly. Additional entries as the market progresses are also discussed, with a caution to backtest and gain confidence before implementing. The paragraph concludes with a reminder to apply the strategy wisely with proper risk management.
Mindmap
Keywords
💡Smart Money
💡Order Block
💡Break of Structure
💡Change of Character
💡Market Structure Levels
💡Entry Reasons
💡Trading Plan
💡Risk Management
💡Fibonacci Retracement
💡Stop Loss
💡Profit Target (TP)
Highlights
Introduction to the Smart Money Trading System which follows the capital movements of financial professionals.
Explanation of the 'Order Block' trading strategy that aligns with the market direction of smart capital.
Importance of understanding smart money concepts like order block, break of structure, and change of character for trading success.
Identification of order blocks as areas of optimized demand and supply formed by large capital influx.
Technique to identify order blocks in both bullish and bearish market scenarios.
Concept of 'break of structure' indicating market's intention to continue in the same direction.
Definition of 'change of character' as a market shift indicated by a break and close below recent support or above resistance.
Two-step strategy involving market structure analysis and order block identification in higher time frames.
Zooming into lower time frames to wait for a 'change of character' for potential trade entries.
Risk management by entering trades with at least two times lower time frame than analysis frame.
Example of applying the strategy using a four-hour chart of the New Zealand dollar for market structure analysis.
Entry strategy using 15-minute charts for finding trading opportunities after identifying order blocks in higher frames.
Execution of trades by placing orders above order blocks with stop loss set below the zone's lowest point.
Profit-taking strategy by closing half the position at the first target and trailing stop loss for the second target.
Guidance on managing multiple trades with reduced risk for subsequent entries after the initial trade.
Advice on not exceeding three open trades for the same currency pair analysis to control risk.
Demonstration of the strategy with examples on the Euro and Aussie dollar, including handling of retracement levels.
Emphasis on backtesting and gaining confidence before applying the strategy in live trading.
Importance of proper risk management and testing the strategy across different currency pairs for best results.
Encouragement for viewers to apply the strategy to their trading plans and ask questions for further clarification.
Transcripts
hey guys
welcome to the smart risk
the smart money trading system is based
on finding the footsteps of the smart
Capital placed in the market by
Financial professionals and entering the
market with them in the same direction
in this episode we will show you an
entire Advanced smart money trading
strategy that will completely blow your
mind
we call this trading strategy order
Block in order block
if learning Advanced trading Concepts
strategies entry reasons and how to stay
disciplined with a trading plan
interests you then you need to subscribe
to our YouTube channel and watch our
videos
see you after the intro
[Music]
before we start to explain the strategy
you need to know several smart money
Concepts such as order block break of
structure and change of character
to fully understand these Concepts go
ahead watch our previous videos which
are linked in the description
but let us have a brief explanation
let's start with the order blocks
order blocks are the optimized demand
and Supply zones
they form when a large amount of money
enters the market resulting in a massive
move
in other words when there is an
imbalance between the buyers and the
sellers
let me show you how we identify the
order blocks
in the bullish scenario the last bearish
Candlestick before the start of a heavy
bullish move is identified as the order
block Zone
or the first week bullish Candlestick
before the Big Move
the same concept applies to the bearish
scenario
now let's discuss the concepts of break
of structure and change of character
imagine a trending Market with a series
of higher highs and higher lows
in this case each of the highs and the
lows are Market structure levels and the
most recent higher high and higher low
are the ones we monitor
breaking the latest higher high to the
upside indicates that the market intends
to continue to the upside which we refer
to as a break of structure
on the contrary if the market breaks the
recent higher low to the downside
it indicates that the market intends to
change its direction which we refer to
as a change of character
the key point is that a break of
structure is valid even if a shadow
breaks above the previous structure
level
but for a change of character we
certainly need a Candlestick to break in
close below the previous Market
structure
now that we discussed the concepts of
smart money let us dive into one of its
top strategies
this strategy has two steps
first we analyze the market structure
and point out order blocks in the higher
time frame
second we zoom in lower time frame and
wait for change of character to appear
and look for order block entries
for example if we have pointed our order
blocks in four hours we look for entries
in 15 minutes
with the same concept if the higher time
frame will be one hour we look for
entries in five minutes
remember that this strategy is not
limited to any time frame but your entry
time frame must be at least two times
lower than your analysis time frame
so let me explain to you the steps of
this strategy on the Candlestick chart
look at this four-hour chart of the New
Zealand dollar which is our higher time
frame
in the first step we analyze the market
structure and point out the most recent
order blocks
here we have an uptrend with this recent
move with imbalance and break of
structure
so this level is a perfect order block
Zone that potentially can get rejected
and give us a trading opportunity
now all we have to do is wait for the
price to touch the order block Zone
in the second step we zoom in on our
entry time frame and look for trading
opportunities
in this case we are analyzing the market
in the four hours time frame so we zoom
in 15 minutes
now notice how we are in a downtrend in
15 minutes
so in the second step we must wait for a
change of character to appear
if we see no change of character then we
will have no trade
in this scenario for having a change of
character we need a candle to break and
close above this area
like this
is a sign that we are no longer in a
downtrend and the market can potentially
start to move to the upside
so next we look for New Order blocks to
place our trades
in this case this Zone makes a perfect
order block since it belongs to the move
of change of character
so this is how we execute the trade
we place our order a spread size above
the order block with stop loss being a
couple of Pips below the lowest point of
the zone
for the first TP you could close half of
your position when the price reaches
your one to two target
this way even if the price gets back and
hits your stop loss you are at break
even
for the second TP you can Target the
next level of structure in front of the
market in the higher time frame
or you can also track down your profit
meaning that every time Market makes a
higher low you reposition your stop loss
a couple of Pips below the lowest candle
but that is not all
we can look for further entries as the
market continues to go to the upside
every time Market makes another order
block we could place a new order with
lower risk
for example notice how the market has
created a new order block here
so we set another order
again we have another order block so we
place another one
but this is optional and never try it
before back testing enough and gaining
the required confidence
also keep in mind that whatever position
size you risk for the change of
character's order block you need to risk
half of the size for the following
trades
also never have more than three trades
open for the same analysis on a pair
for example if you have a small account
and are willing to risk two percent for
the first trade risk one percent for the
second and third
this way in the worst case scenario you
will only lose four percent of your
capital
but in the best cases you will earn far
more profits which is how you make a
smart risk
I hope this was not confusing for you
if it was let me show you more examples
but before we do that if you feel
generous please go ahead and click on
the like And subscribe buttons since it
goes a long way to support us in making
more videos
now let us look at the euro dollar one
hours time frame
here we can immediately notice this
impulsive move to the downside with
imbalance and BOS
so we draw our order block
now that the price has reached this
level let's zoom in five minutes time
frame and look for entries
here we can see that we have already
made a change of character since the
candles have breaked and closed below
this level
so we marked this recent five minutes
order block and place our sell order
now notice how price made a new order
block
so without canceling our first trade we
will place another one with reduced risk
now let's see what will happen
so price came back and hit the stop loss
of the second trade and triggered our
first one and hit our Target
in this case you would lose a small
percentage on the second trade and
profit much more from the first one
this is a common scenario while trading
the smart money strategy
you should not cancel your orders before
the price reaches your target
let us see another trade example on the
Aussie dollar which is partly different
from what we had earlier
here we have an impulsive move to the
downside so we draw our order block
since this is a four hours time frame we
zoom in 15 minutes to find possible
short entries
in 15 minutes we have already made a
change of character so it's time to find
a new order block and place short
entries
but there is one problem
we want our stop loss protected above
this swing High
but we cannot identify any order blocks
here
so how do we place trades
in situations like this we enter the
market with retracement levels
we opened Fibonacci retracement and
place the sell order precisely in the
middle of 618 and 786 levels
we want our stop loss wider this time
because we are early sellers since the
swing High barely touched the four hours
order block
usually the market likes to hunt the
stop loss of early sellers
okay guys
I hope you can apply this strategy to
your trading plan
but remember knowing this strategy is
not enough and to execute it correctly
you should test it on different currency
pairs to find the best pairs for this
also have a proper risk management plan
to be safe on stormy days
that is it for this video
thank you for watching
if you enjoyed it please give it a
thumbs up and subscribe to our channel
to inspire us to make more videos like
this
also if you have any questions feel free
to comment them below
see you guys next time
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