The Ultimate Order Block Trading Strategy (FULL Masterclass) | SMC

Summary

In this video, the presenter shares a comprehensive strategy for trading order blocks profitably. The key points include understanding what order blocks are, how to identify them, and the three essential rules for selecting high-probability order blocks: trading with the trend, waiting for liquidity runs, and confirming break of structure. The step-by-step trading approach demonstrates how to spot and enter trades using order blocks, with risk management emphasizing a 1:2 risk-to-reward ratio. The video also includes a real-world example of a trade on Euro/USD during the London session, showcasing how these principles are applied in practice.

Takeaways

• 😀 An order block is a price area with large resting orders waiting to be triggered, causing price reactions.
• 😀 To identify an order block, look for a large volume kick into the market, marked by an aggressive candle movement.
• 😀 The final candle before an impulsive move (sell to buy or buy to sell) is key in identifying an order block.
• 😀 A fair value gap (imbalance between candles) is essential for confirming the presence of an order block.
• 😀 In a bullish order block, the first candle's wick must not meet the wick of the third candle, creating a gap.
• 😀 For a bearish order block, look for a buy-to-sell transition with a fair value gap.
• 😀 Ensure that your trade is pro-trend, meaning it aligns with the overall market direction (bullish or bearish).
• 😀 Wait for a run on liquidity (a sweep of stop orders) before entering a trade at an order block.
• 😀 The order block should ideally lead to a break of structure, confirming that it fits within the larger market trend.
• 😀 When entering a trade, after identifying the order block, wait for confirmation on lower timeframes (like 1-minute) before taking action.
• 😀 Always target logical price levels, using a minimum risk-to-reward ratio of 1:1.25 or better, and ensure your stops are placed at reasonable levels.

Q & A

What is an order block in trading?

An order block is a specific area in the price chart where large resting orders are waiting to be triggered. These areas often lead to significant price reactions when price trades into them.

How do you identify a bullish order block?

To identify a bullish order block, look for an aggressive bullish candle followed by a sell-to-buy candle. The final sell candle before the aggressive buy move is the order block, and it should have a fair value gap between its wick and the next candle.

What is a fair value gap and why is it important?

A fair value gap occurs when the wick of a candle does not meet the wick of the next candle, creating an imbalance. This gap indicates a potential order block area, as large resting orders may exist in this unfilled price range.

What are the three key rules for identifying high-probability order blocks?

1) Trade in the direction of the trend (Pro Trend). 2) Look for a run on liquidity before an order block forms. 3) Ensure the order block is part of a price leg that has already broken structure.

Why is it essential to trade in the direction of the trend when using order blocks?

Trading in the direction of the trend ensures higher probability trades, as counter-trend trading can lead to more frequent losses due to the prevailing market momentum.

What does 'run on liquidity' mean in the context of identifying order blocks?

A run on liquidity occurs when price moves to take out resting stops or orders, often seen as a sweep of previous lows or highs, before reversing direction. This indicates a potential order block where price is likely to react.

What is a break of structure, and why is it important for order blocks?

A break of structure happens when price moves past a significant high or low, signaling a shift in market direction. It’s important for order blocks because a valid order block should be part of a price leg that has broken structure, confirming its strength.

How does a change in market structure affect order block trading?

A change in market structure, such as a shift from lower lows and lower highs to higher highs and higher lows, signals a change in trend direction. Traders use this shift to align their entries with the new trend and identify order blocks for potential trades.

What role does the Asia session play in order block trading?

The Asia session is crucial because it often establishes key liquidity zones with equal highs and lows. These areas provide potential order block zones that can be traded during the subsequent London session, especially when price pulls back into these liquidity zones.

What is the significance of the 1-minute timeframe in the trading strategy?

The 1-minute timeframe is used to fine-tune entries once the higher timeframe order block and trend direction are confirmed. Traders drop to the 1-minute chart to look for a market structure shift that aligns with the higher timeframe trend, allowing for precise entry points.