High Probability Order Blocks Secrets | ICT/SMC Concepts [Full In-Depth Guide]

Summary

This video explains high-probability order blocks in trading, focusing on what order blocks are and how to identify and trade them effectively. The presenter covers common mistakes traders make, such as overemphasizing candle color or misidentifying the correct order block. The video outlines the key criteria for a valid order block, including liquidity sweep, breaker structure, displacement, and inducement. Different entry strategies, including limit orders and lower time frame confirmation entries, are discussed, along with their pros and cons. The video offers valuable insights for traders looking to improve their understanding and application of order blocks.

Takeaways

• 😀 High probability order blocks are not simply any bullish or bearish candles before a price move; they must meet certain criteria to be considered valid.
• 😀 An order block is defined as the extreme candle that comes just before an extreme fair value gap, and it should meet four key criteria.
• 😀 The four criteria for a high probability order block include: liquidity sweep, breaker structure/change of character, displacement, and inducement/liquidity.
• 😀 The color of the candle in an order block doesn't matter; both bullish and bearish candles can serve as order blocks depending on the price action around them.
• 😀 A liquidity sweep occurs when the price moves above or below previous highs/lows and then quickly returns to the range, signaling potential reversal or continuation.
• 😀 Fair value gaps should be present alongside displacement to confirm a valid order block, and they must be formed immediately after a breaker structure or change of character.
• 😀 Inducement refers to liquidity that forms above or below an order block, enticing traders to take positions before the price reacts at the block.
• 😀 To trade order blocks, one can either use a limit order at the order block level (same time frame entry) or wait for confirmation on a lower time frame before entering.
• 😀 Lower time frame entries offer better reward-to-risk ratios, tighter stop losses, and a more accurate entry point but come with the risk of being stopped out due to noise.
• 😀 Same time frame entries are more relaxed and avoid the noise of lower time frames, but they can have larger stop losses and may result in missed trades if the price reacts quickly.
• 😀 Beginners are advised to stick with same time frame entries for ease of use, as lower time frame entries may lead to frequent stop-outs and can be challenging to manage.

Q & A

What is an order block in trading?

An order block is an area on the chart where price shows a good entry point for buying or selling. It is essentially the price zone where significant market moves happen, and it helps traders identify potential areas of high probability for trade entries.

What is the common misconception about order blocks?

A common misconception is that an order block is simply the last bullish candle before a bearish move or the last bearish candle before a bullish move. However, this definition is incomplete because order blocks must meet additional criteria to be valid.

What are the four criteria for identifying high probability order blocks?

The four criteria for high probability order blocks are: 1) Liquidity Sweep, 2) Change of Character (Breaker Structure for continuation or Reversal), 3) Displacement and Fair Value Gap, and 4) Inducement or Liquidity above/below the order block.

Why doesn’t the color of the candle matter in identifying an order block?

The color of the candle doesn’t matter because the definition of an order block is based on its position in the market and its role in creating price movement. An order block can be formed by either a bearish or bullish candle, and the color doesn’t necessarily indicate its effectiveness.

What is a liquidity sweep, and why is it important in an order block?

A liquidity sweep occurs when price breaks through a key level to trigger stop-loss orders or other liquidities, only to quickly reverse direction. It’s important because it shows that liquidity has been taken from the market, and price could move back in the opposite direction, creating a potential trade opportunity.

What is the difference between a breaker structure and a change of character?

A breaker structure applies when a market is continuing in the same direction, signaling a continuation trade, while a change of character (CHoCH) refers to a shift in market direction, indicating a potential reversal. Both concepts help confirm whether the market is in a trend or a reversal phase.

How does displacement contribute to an order block?

Displacement refers to the sharp price movement in one direction, which creates momentum. For an order block to be high probability, there must be a displacement of price that leads to a fair value gap. This movement helps confirm the strength of the order block.

What is an inducement, and how does it relate to order blocks?

Inducement is the creation of liquidity above or below the order block, where traders are enticed to enter positions before the price reverses. It often appears as price moves toward the order block but doesn't immediately respect it, creating an opportunity for price to take out liquidity before reversing.

How can a trader enter a position based on an order block?

A trader can enter a position using two methods: 1) A same-time-frame entry (limit order) at the start of the order block with stop-loss above the block, or 2) A lower time-frame confirmation entry, where the trader waits for confirmation of a reversal pattern inside the order block on a smaller time frame.

What are the pros and cons of using a lower time-frame entry for order blocks?

The advantages of a lower time-frame entry include tighter stop-losses and better entry prices, leading to a higher reward-to-risk ratio. However, the cons include the risk of multiple stop-loss hits due to market noise, and the need for more active management of the trade.