Order Blocks - A-Z Guide Episode 1

Summary

This video introduces the concept of order blocks in trading, explaining how institutions use large orders to influence market prices. It emphasizes the importance of understanding premium and discount arrays, identifying support and resistance levels, and recognizing patterns in price action. The presenter encourages viewers to study order blocks, focusing on their formation, mean thresholds, and the probability of their holding or failing, to develop an intuitive trading edge without seeking a 'Holy Grail' of guaranteed success.

Takeaways

• 📈 The video introduces the concept of order blocks, which are significant areas of trading activity often involving large orders from institutions.
• 🤔 Order blocks can initially be confusing, but it's normal to have questions and doubts that will likely be answered in later videos.
• 💡 The presenter emphasizes the importance of understanding both the logic behind order blocks and the context in which they occur.
• 🛑 Institutions often buy on down candles and sell on up candles due to the size of their orders requiring opposite action to the current price movement.
• 📉 For a bullish order block, the criteria include coming off support, breaking the high of the down candle, and respecting the mean threshold (50% of the candle's body).
• 📈 A bearish order block is identified by coming off resistance, breaking the low of the up candle, and respecting the mean threshold.
• 🔍 The mean threshold is crucial as it helps determine if an order block will hold; a close below this threshold could indicate a failure.
• 📊 Order blocks can consist of multiple consecutive candles and are not limited to single candles.
• 🚫 Not every order block will hold, and understanding this is part of working with probabilities in trading.
• 📚 The video encourages viewers to study order blocks on their own charts to develop an intuition and edge in trading.
• 🔑 Mastery of the basics is highlighted as essential for successful trading, and the A to Z guide is intended to help both beginners and advanced traders.

Q & A

What is the main focus of the first technical video in the A to Z guide?

The main focus of the first technical video is on order blocks, explaining the concept of premium and discount arrays and how to identify and use order blocks in trading.

What is a premium array in the context of trading?

A premium array refers to a situation where the price is high, indicating that it is more likely to sell off. Traders looking for lower prices would use a premium array.

What is a discount array and how should traders act in a discount situation?

A discount array is when the price is low, suggesting that it might be a good time to buy. In a discount situation, traders are advised to buy in discount and sell in premium.

Why do institutions buy on down candles and sell on up candles?

Institutions buy on down candles and sell on up candles because they have large orders that cannot be executed instantly like retail traders. They need to do the opposite of what the current price is doing to get into the market without causing significant price movements.

What criteria must a bullish order block meet to be considered valid?

A bullish order block must come off of support, break the high of the down candle, and then return to that order block. Additionally, the mean threshold, which is 50% of the candle bodies, should not be disrespected (i.e., the price should not close below it).

What is meant by 'mean threshold' in the context of order blocks?

The mean threshold refers to 50% of the bodies of a certain candle within an order block. It is important because if the order block is to hold, the price should not close below this threshold.

Can an order block consist of multiple consecutive candles?

Yes, an order block can consist of multiple consecutive down candles or up candles. When there are multiple consecutive candles, they are considered as one big order block.

What is a 'fair value gap' mentioned in the script and why is it important?

A 'fair value gap' is a term mentioned in the script that seems to refer to a specific type of price gap that verifies the support or resistance level. It is important because it helps in identifying the top of the wick or the body of the candle to use when determining the order block.

Why is it important for traders to study order blocks on their own charts?

Studying order blocks on individual charts helps traders to train their brains and eyes, developing their own intuition and edge in the market. It allows them to understand which order blocks hold and which fail, enhancing their trading skills.

What is the significance of mastering the basics in trading according to the video?

Mastering the basics is crucial because it forms the foundation of successful trading. Even advanced traders can sometimes overlook simple steps, and mastering these basics helps in applying them consistently for better trading results.

Why shouldn't traders expect every order block to hold or every mean threshold to guarantee success?

Traders should not expect every order block to hold because trading involves probabilities, not certainties. Even when the mean threshold is respected, an order block might fail, and vice versa. Understanding this helps traders to manage expectations and risks better.

Outlines

00:00

📚 Introduction to Order Blocks

The speaker introduces the concept of order blocks, which are large orders placed by institutions that can't be executed instantly due to their size. They explain that these blocks are crucial for understanding market movements, particularly the behavior of institutional buyers and sellers. The video aims to clarify the basics of order blocks, emphasizing the importance of recognizing premium and discount arrays, which are strategies for buying low and selling high, respectively. The speaker encourages viewers to write down their questions, as they will likely be addressed in subsequent videos.

05:00

📉 Understanding Bullish and Bearish Order Blocks

This paragraph delves into the specifics of identifying order blocks, focusing on the criteria that make up a bullish order block. The speaker explains that a bullish order block should come off support, break the high of a down candle, and then see a return to that block, indicating a potential buying opportunity. The concept of 'mean threshold' is introduced, which is 50% of the candle's body, and should not be breached for the order block to hold. The importance of context and the alignment with market bias is also highlighted, with examples provided to illustrate the points.

10:01

📈 Analyzing the Dynamics of Order Blocks

The speaker continues the discussion on order blocks, this time focusing on bearish order blocks. They describe the conditions that make an up candle a bearish order block, such as coming off resistance, breaking the low, and respecting the mean threshold. The paragraph emphasizes the probabilistic nature of order blocks, noting that not every block will hold but understanding these patterns can give traders an edge. The speaker also touches on the importance of studying price action and developing one's own intuition and edge through personal analysis.

15:02

🔍 Spotting High-Probability Order Blocks

In the final paragraph, the speaker encourages viewers to study and focus on order blocks, emphasizing the need to understand why certain candles hold as order blocks and others do not. They highlight the importance of recognizing patterns, such as support and resistance levels, and the role of mean threshold in determining the strength of an order block. The speaker also warns against the pursuit of a 'Holy Grail' in trading, reminding viewers that trading involves probabilities and that even with a solid understanding of order blocks, there will still be losses. The goal is to increase the odds in one's favor through diligent study and practice.

Keywords

💡Order Block

An 'Order Block' in the context of the video refers to a specific pattern in trading where large orders from institutions, such as central banks, create identifiable price patterns. These blocks are characterized by large volume trades that occur at specific price levels, often during periods of price reversals. The video emphasizes the importance of recognizing these patterns as they can indicate potential areas of support or resistance, which are crucial for making informed trading decisions.

💡Premium and Discount

The terms 'Premium' and 'Discount' in the video script describe the relative value of an asset compared to its perceived fair value. A premium indicates that the price is high, suggesting that it may be overvalued and more likely to sell off, while a discount implies that the price is low, indicating potential value and a buying opportunity. These concepts are central to the trading strategy discussed in the video, guiding when to buy or sell based on perceived overvaluation or undervaluation.

💡Support and Resistance

In the video, 'Support' and 'Resistance' are fundamental concepts in technical analysis used to identify price levels at which the asset's price is more likely to find a stopping point and reverse. Support is a price level where the asset is expected to find buyers, while resistance is where it is expected to find sellers. The video script uses these terms to explain how order blocks form and the significance of these levels in determining potential trading opportunities.

💡Bullish and Bearish

The terms 'Bullish' and 'Bearish' describe market sentiment and potential price direction. A 'Bullish' order block suggests that the market is expected to rise, while a 'Bearish' order block indicates a potential market decline. The video script uses these terms to differentiate between order blocks that are formed under different market conditions and to highlight the importance of context when identifying these patterns.

💡Mean Threshold

The 'Mean Threshold' mentioned in the video script refers to the midpoint of an order block, calculated as 50% of the range between the high and low of the candles within the block. This threshold is significant as it can act as a level of interest for traders, indicating whether the order block is holding or failing. If the price closes below the mean threshold, it may suggest weakness in the order block's ability to support or resist price movement.

💡Fair Value Gap

A 'Fair Value Gap' is a term used in the video to describe a price gap that occurs when the market opens at a price different from the previous close, reflecting a change in the perceived value of the asset. The script mentions that the top of the wick of a candle may be considered part of the order block if it overlaps with a fair value gap, indicating a strong influence from institutional trading activities.

💡Candlestick

In the context of the video, a 'Candlestick' represents a unit of price movement over a specific time period, typically showing the open, high, low, and close prices. The video script discusses the importance of analyzing the bodies and wicks of candles to identify order blocks and make trading decisions. The color of the candles (white for up/candles and black/dark for down candles) is used to visually represent whether the price has increased or decreased during the period.

💡Breakout Traders

The term 'Breakout Traders' in the video refers to a type of trader who enters a trade when the price moves outside a predefined range or level, such as breaking a high or low. The script mentions that these traders often place buy stop orders above a resistance level and sell stop orders below a support level, aiming to capture momentum after a breakout occurs.

💡Rejection

In the video, 'Rejection' is used to describe a situation where the price approaches a certain level but fails to maintain momentum and reverses direction. This can be seen as the market 'rejecting' the idea of continuing in that direction. The script discusses how rejections can occur after an order block is tested and can indicate the strength or weakness of that block.

💡Mastering the Basics

The concept of 'Mastering the Basics' is a recurring theme in the video script, emphasizing the importance of understanding and consistently applying fundamental trading principles. The speaker suggests that even advanced traders can benefit from revisiting and refining their understanding of basic concepts like order blocks, support and resistance, and candlestick analysis.

Highlights

Introduction to the concept of order blocks in trading, which are significant for institutional trading strategies.

Explanation of premium and discount arrays and their relation to buying and selling strategies based on price levels.

The importance of recognizing order blocks for identifying institutional behavior in the market.

How institutions use opposite price action to enter the market, buying on down candles and selling on up candles.

Criteria for identifying a bullish order block, including coming off support and breaking the high of the down candle.

The concept of mean threshold and its significance in evaluating the strength of an order block.

The role of support and resistance levels in the formation and validation of order blocks.

Differentiating between high and low probability order blocks and the importance of context in their formation.

The significance of the wick in an order block, especially when it overlaps with a fair value gap.

How to spot bearish order blocks by looking for up candles coming off resistance and breaking lows.

The process of identifying and validating order blocks through price action and mean threshold respect.

The importance of mastering the basics in trading and applying them consistently for success.

The reality that not every order block will hold, emphasizing the probabilistic nature of trading.

The role of personal bias in the interpretation of order blocks and its impact on trading decisions.

Encouragement for traders to study order blocks on their own charts to develop their intuition and edge.

The caution against seeking a 'Holy Grail' in trading and the importance of understanding probabilities.

Final thoughts on the significance of order blocks in making profitable trading decisions.

Transcripts

hello everyone hope you're doing all

right and welcome to this first video

well not actually the first but the

first technical video on the A to Z

guide so in the beginning this first

video is on order blocks in the

beginning you will have questions you

will have doubts on certain topics

etc etc this is completely normal write

those questions done and they will

likely get answered later on in the

videos alright so I wanted to start with

order blocks first off we are going over

every BD array what is PD

premium and discount array premium

obviously being if price is high it's in

a premium and we are more likely to sell

off

and if we are in a discount for example

here discount low prices we want to buy

in discount we want to sell in premium

so when I refer to a PD Ray I refer to a

premium and discount array if I'm

looking for lower prices I'm looking to

if I'm looking for lower prices I want

to use a premium array and if I'm

looking for higher prices I want to use

a discount array alright so the first PD

array I wanted to discuss is an order

block now the theory behind order blocks

obviously in the name order block there

are orders inside that block whose

orders are inside that block think of

Institutions think of central banks

institutions have such large orders they

can't just simply press buy and sell

wherever they want like weekend as

retail institutions need to do the exact

opposite of what price is currently

doing to get into the mark so for

example and by the way every up candle

right here is white and every down

candle is bluish black so institutions

are buying Down Candles simply because

their orders are so large they can't buy

on up candles institutions Buy on Down

Candles why for every buyer there needs

to be a seller for every seller there

needs to be a buyer if we know there are

willing sellers right here who is buying

those sell orders institutions what do

we create when institutions are buying

those sell orders order blocks alright

so let's get into it how can we actually

spot an order block again some things

might be a little bit confusing because

obviously it's the first video so go in

with an open mind and don't expect to

growth every single thing right now so

we just explained the basics and the

logic behind an order block of course if

you have a different logic and that

logic works for you please go ahead and

use a logic my logic might not be for

you and that's completely fine if you

have a different logic and you want to

use a different logic that's completely

fine I'm not here to I'm not here to

force a logic down your throat or

anything My Philosophy Etc I said in the

intro video everyone needs their own

logic what makes sense to them everyone

is a unique individual so everyone needs

their own unique logic their own unique

view on the market so again if my logic

doesn't suit your logic stick to your

own logic perfect be fine alright so if

we know institutions are buying in Down

Candles and selling in up candles then

Up and Down Candles would be order

blocks right correct so so let's go over

a few criteria that an order block needs

to have if we are looking for a bullish

order block and note that down a bullish

order block we want to see a down candle

a down candle that fits the criteria

area is a bullish order block a bullish

order block needs to come off of support

it needs to break the high of the down

candle then that creates a bullish or

block if it then returns to that order

block we can possibly buy of course not

Financial advice and then here you can

see the fourth is empty empty stands for

mean threshold mean threshold is 50 of

the order block and it's only the bodies

of the candle not the Wicks the bodies

of the candle 50 of that is mean

threshold so whenever I refer to mean

threshold it's 50 of the bodies of a

certain candle all right now let's look

at some different order blocks for

example these two Down Candles an order

block doesn't have to be one single

candle it can be but if there's multiple

consecutive Down Candles or multiple

consecutive up candle it is one big

order block so these two consecutive

Down Candles

are one order block is it coming off of

a previous support yes we have a fair

file you get right here now you might

not know what a fair value Gap is

currently so if you don't know write

that down we'll get into it in a later

video so these two Down Candles is one

order block we are coming off of a

previous support level this verify Gap

if this is the if this is the order

block what's the second thing we need we

need the high to get broken what's the

high of this or block since we can

basically see this as a one big order

block this is the high now the next

thing we need is a return a return and a

new push away this is the very basics of

an order bug but the basics are

important for you to master people like

to skip the basics and this is why I

said this A to Z guide is also for

advanced Traders why Advanced Traders a

lot of the times forget

these simple steps and they are

essentially ahead of themselves and they

forgot to master the basics what makes

someone a master is when they Master the

simple Basics and they apply them on a

consistent basis master the basics and

you will Master trading alright so we

have one two three support level high

gets broken we have a return perfect

then the fourth one the empty the mean

threshold the mean threshold would be

this right here now this is a little bit

Advanced now why is the mean threshold

important and why did I even mention it

if this order block does want to hold I

wouldn't want to see the main threshold

aka the 50 of this or block get

disrespected disrespected meaning

closing below the mean threshold now for

the open of the order block why did I

take this Wick and not the body of the

candle the wick is overlapping with a

fair value Gap again you might not know

what a favor Gap is right now so write

that down so the top of the week only

the top of the wick is important to me

right here the top of the wick is

overlapping or with a very very Gap

right here

and that's why I take the top of the

wick if this wasn't overlapping with a

verifying app then I would have taken

the body of the candle why well if the

wick wasn't overlapping with a fair

value gap for example we can say let's

pretend that this is the wick right here

and it isn't overlapping with the flag

at the top of the wick then the top of

the wick is not the sensitive area the

top of the wick is already mitigated so

the unmitigated orders are right here in

the body of the candle again remember

what we've gone over a bullish order

block is just Down Candles a bearish

order block is just up candles but again

the context behind them the steps etc

those are important and that's why not

every down candle and not every up

candle is an order block the context

behind them is very important as well as

are they aligned with your bias if you

think price is going higher and if price

is going higher then every up candle is

not a bearish order block and if you

think price is going lower so for

example this up candle if price is in a

bullish movement

this is not a bearish order block now

we've just gone over a bullish order

block let's dive into some bearish

border blocks as well so as you may have

seen right here try to spot all the

bearish order blocks right here and what

makes them a bearish order block alright

so we are pushing lower after coming

above this High AKA this week Above This

high is a sweep of the high what is

basically happening right here breakout

Traders so people with a buy stop that

are buying when the high gets broken

right here will have a stop loss below

this low so price will Target the

opposite side now if we know this and we

are sweeping this High then we have a

bearish bias all the up candles that are

forming when we have bearish buyers will

act as an order block and these up

candles will more than likely hold a lot

of the times this right here

is it coming off of a resistance again

if we're looking at a bearish or block

we want to see it come off of resistance

and we're going to see the low get

broken we're coming off of small fair

value Gap right here we are rejecting

away we are breaking the low and notice

how mean threshold got respected right

here

no candle close above mean threshold

then we have another up candle right

here

this up candle is it coming off of

resistance yes did it break the low off

this up candle yes the low got broken

right here did it return to the ore

block

yes it returned right here did you

respect mean threshold yes it respected

mean threshold

very important for you to understand

not every order block will hold not

every order block where me threshold

gets respected will hold not every order

block where mean threshold gets

disrespected will hold but we have to

think in probabilities

these are the highest probability

conditions these are where the odds are

in our favor and how do we select the

bearish order box right here we take the

bodies why

no fair value Gap overlapping again if

you don't know what a fair value Gap is

write that question down and we'll get

into it later now if we move on here we

have this new order block right new up

candle New Order block low gets broken

a return to the order block the wick

right here empty gets respected

and we see a new rejection away

now what do we create right here a new

bearish order block is it as simple as

this well yes it can be will it always

be as simple as this no an order block

will fill sometime now spotting a high

probability order block and spotting a

low probability order block if something

we'll get into later for you it's

important to now go over your own charts

and seeing which order block holds and

which order block fails by doing this

you will train your own brain you will

train your own eyes you will train your

own intuition which is very important

because then you're developing your own

Edge just by me telling you these steps

will not help you you have to do the

work on your own I'm just giving you the

guidelines to get you to actually start

the work now again this is an order

block why it's coming off of previous

resistance in the form of this order

block the low got broken a return the

return doesn't have to happen for it to

be an Orbach only support and resistance

and the high and low so the first two

steps those two have to happen for it to

be considered an order block all right

now let's take a look at some bullish

order blocks as well alright perfect Can

you spot the bullish order blocks right

here so let's take a look together

right here we have a bullish or block

why we're coming off of some kind of

support right here in the form of a

rejection block write that down then the

high is broken we see a return these are

all consecutive Down Candles so this is

one big order block mean threshold would

be right here I mean threshold gets

respected

what happens after we create a new or

the block right here a new bullish order

block

why it's coming off of previous support

in the form of this bullish order block

then we create this new order block

right here

then we create a new order block right

here

and here we create a new order block

this order block builds and we have a

big rejection to the downside and then a

continuation up

now what does this create

some form of New Order block right

now what happened here this order block

gets respected mean threshold gets

disrespected and we still continue

higher we had this order block fail main

threshold gets disrespected right here

what is happening the market is wrong

surely I'm doing something wrong right

no not every order block will hold like

I said not every time the main threshold

will get disrespect and the order Buck

will fail but we are working with

probabilities and that's what a lot of

people forget a lot of people forget

that we aren't working with

probabilities so after our loss after

something doesn't work once or even

twice they will look for the next best

thing something that will guarantee them

100 win rate and that's why a lot of

people got into smart money Concepts and

into ICT in the first place right A lot

of people got into smart money Concepts

into ICT why because they thought it was

the answer to everything and in some way

the market isn't random but if you are

seeking for that just be very conscious

of the fact that you might be searching

for the Holy Grail because why a lot of

people got into ICT and smart money

Concepts in the first place is because

they thought it was the Holy Grail and

let me tell you it isn't and you will

still take glasses and things will still

fail alright let's continue right here I

just want to touch on this last little

order block right here this order block

right here

do we take the wick or the open of the

order block

there is a referral Gap right here but

the top of the wick isn't overlapping

with the forfeit so

take the body study this price action

that's coming up study this price action

on your own until Friday I want you to

study and focus on order blocks so

Wednesday and Thursday focus on order

blocks order blocks order blocks order

blocks which down candles are holding

which up candles are holding why are

they holding what's happening beforehand

on which time frame are they dip me

threshold get disrespected did it get

respected what happened are we very high

are we high in premium are we low in

discount

what is happening notice the patterns

Etc use the journal that was provided in

the intro video

and note all your discoveries if you

truly master or blocked then I want to

thank you and that's the end of the A to

Z guide for you because order blocks

alone could make you profitable on that

note I'll see you in the next video on

Friday and I want to thank you for being

here alright thank you

thank you

[Music]