Only 4 Rules for High Quality Order Blocks

Summary

In this video, Diam shares crucial strategies for selecting high-quality order blocks in trading to improve profitability. He outlines four key rules for identifying prime order blocks, including recognizing structural breaks, spotting imbalances, ensuring the block is above the 61.8% Fibonacci retracement, and timing the entry during the London or New York sessions. Diam also discusses three entry models, ranging from simple limit orders to more advanced entry techniques. By understanding these methods and integrating higher time frame analysis with lower time frame entries, traders can maximize risk-to-reward ratios and improve trade consistency.

Takeaways

• 😀 Focus on finding high-quality order blocks to improve trading success.
• 😀 The key to profitable trading isn't trade management or risk management, but selecting the right order blocks.
• 😀 Rule 1: The order block must cause a break of structure in the market.
• 😀 Rule 2: Look for imbalances or fair value gaps immediately after the order block.
• 😀 Rule 3: The order block should be above the 61.8% Fibonacci retracement level (Optimum Trade Entry).
• 😀 Rule 4: The order block should be formed during the London or New York kill zones for higher quality.
• 😀 Use the four rules of order block selection to identify high-quality points of interest for your trades.
• 😀 Method 1: Higher time frame entry limit—set your entry at the bottom of the order block and stop-loss above.
• 😀 Method 2: Higher time frame engulfing entry—wait for an engulfing candle to confirm the move before entering.
• 😀 Method 3: Lower time frame London and New York entry—use minor changes in market structure during these sessions to set entries with better risk-to-reward.

Q & A

What is one of the biggest challenges that traders face according to the speaker?

The biggest challenge traders face is not knowing how to find order blocks, but rather how to select the high-quality ones that are most likely to lead to profitable trades.

Why does the speaker believe that having good trade and risk management isn't enough for success?

Good trade and risk management are not enough because if traders consistently enter the market with incorrect points of interest, they will not be profitable, regardless of their management skills.

What is Rule 1 for selecting high-quality order blocks?

Rule 1 states that the order block should cause a break of structure. This means the price action must show a clear change in direction, such as a downtrend followed by a significant break and pullback.

What does Rule 2 focus on in terms of order block selection?

Rule 2 emphasizes that an imbalance or fair value gap should form after the order block. This indicates that the market has moved aggressively, creating inefficiencies or imbalances that could lead to a profitable setup.

What does Rule 3 state about the location of an order block?

Rule 3 states that the order block must be above the 61.8% Fibonacci retracement level, which is known as the optimum trade entry (OTE) zone. This indicates the most favorable level for entering a trade.

What is the significance of the 61.8% Fibonacci retracement in trading?

The 61.8% Fibonacci retracement level is considered a key zone for potential price reversals. Traders aim to enter trades when price pulls back to this level, increasing the likelihood of a continuation in the desired direction.

What does Rule 4 say about the timing of an order block?

Rule 4 states that the order block must be formed or hit during the London or New York kill zone, which are specific time periods when market activity tends to be highest and most volatile.

What are the three main types of entry models the speaker uses?

The three main entry models are: 1) Higher time frame entry limit, 2) Higher time frame engulfing entry, and 3) Lower time frame London and New York entry.

How does the higher time frame entry limit method work?

The higher time frame entry limit method involves setting an entry at the bottom of the order block on a higher time frame, placing a stop loss above the order block, and setting a take profit at a relevant liquidity zone.

What is the advantage of using the engulfing candle method for entries?

The engulfing candle method provides an additional level of confirmation. After the order block is hit, if an engulfing candle forms, it signals stronger momentum in the direction of the trade, reducing the likelihood of a false breakout.