Best Order Block Trading Strategy (Advanced)

Summary

This 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

00:00

🚀 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.

05:03

📈 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.

Keywords

💡Smart Money

Smart Money refers to the capital managed by professional investors and financial experts who are believed to have superior knowledge and insight into market movements. In the context of the video, the smart money trading system is based on identifying and following the market entries made by these financial professionals, aiming to capitalize on their informed decisions. The video suggests that by understanding and tracking the movements of smart money, traders can make more informed and potentially profitable trades.

💡Order Block

An Order Block in the video is defined as an area on the price chart that represents an optimized demand and supply zone. It forms when a significant amount of capital enters the market, leading to a substantial price movement, often indicating an imbalance between buyers and sellers. The concept is central to the trading strategy discussed in the video, where traders look for these zones to identify potential entry points for trades that align with the direction of large capital flows.

💡Break of Structure

Break of Structure is a term used in the video to describe a scenario where the market price surpasses the most recent higher high in an uptrend. This action suggests that the market intends to continue moving in the upward direction. It is a key concept in the smart money strategy, as it helps traders identify potential continuation patterns and decide when to enter a trade in the direction of the prevailing trend.

💡Change of Character

Change of Character is another pivotal concept in the video, which occurs when the market breaks the most recent higher low in a downtrend, signaling a potential shift in the market's direction. This concept is crucial for identifying reversal patterns and determining the right moment to enter a trade against the previous trend. It is part of the strategy's second step, where traders look for this change to appear before seeking entry points.

💡Market Structure Levels

Market Structure Levels are points on the price chart that represent significant highs and lows in a trending market. These levels are used as reference points to monitor the market's direction. In the video, the most recent higher high and higher low are the structure levels of interest, as they help determine whether a break of structure or change of character has occurred, which in turn influences trading decisions.

💡Entry Reasons

Entry Reasons in the context of the video refer to the specific conditions or signals that justify entering a trade. The smart money trading strategy outlined in the video is based on identifying these reasons, such as the presence of order blocks, breaks of structure, and changes of character, which provide logical and strategic entry points for trades.

💡Trading Plan

A Trading Plan is a structured approach to trading that outlines a trader's strategies, risk management, and entry and exit criteria. The video emphasizes the importance of having a disciplined trading plan to follow the smart money trading strategy effectively. It suggests that sticking to a plan helps maintain consistency and reduces the likelihood of making impulsive or uncalculated trades.

💡Risk Management

Risk Management is a critical component of the smart money trading strategy discussed in the video. It involves setting stop losses, determining position sizes, and ensuring that the potential loss on any single trade does not exceed a predetermined percentage of the trader's capital. The video advises traders to risk only a small percentage for each trade and to never have more than three trades open for the same analysis on a currency pair.

💡Fibonacci Retracement

Fibonacci Retracement is a technical analysis tool used in the video to identify potential support and resistance levels during a price retracement. It is part of the strategy when there are no clear order blocks to place trades. The video demonstrates using the 61.8% and 78.6% retracement levels as entry points for trades, especially in situations where the market is early in its movement against the trend.

💡Stop Loss

A Stop Loss is an order placed with a broker to sell a security when it reaches a certain price, typically used to limit an investor's loss on a position. In the video, setting a stop loss is a key part of the smart money trading strategy, where the stop loss is placed a few pips below the lowest point of the order block zone or below the market structure level, depending on the trade scenario.

💡Profit Target (TP)

Profit Target, often abbreviated as TP, is the price level at which a trader intends to sell a security to realize a profit. The video describes a strategy where traders set two profit targets for each trade: the first to close half of the position at a one-to-two target, ensuring a break-even or profit scenario if the price reverses, and the second to target the next level of market structure in the higher time frame or to trail the stop loss as the market makes higher lows.

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