High-Quality Order Blocks: 3 Rules to Trade Like a Pro #orderblock

Summary

This video teaches traders how to use order blocks to better understand market movements and trade with more confidence. It explains how order blocks, which represent the footprints of institutions and smart money, can be used to predict price movements. The video highlights the importance of identifying strong order blocks, avoiding traps, and confirming setups through key elements like break of structure and change of character. By combining order blocks with discount and premium zones, traders can filter out weak setups and focus on high-probability trades for better results in the market.

Takeaways

• 😀 Order blocks are key zones where institutions and smart money place large orders, causing significant price movements.
• 😀 Not all order blocks are equal—some are strong, while others are weak. It's important to focus on the strong ones.
• 😀 Order blocks become key levels for traders, with price often returning to these levels before continuing its move.
• 😀 The first type of order block is bullish, created by strong buying pressure, signaling potential upward movement.
• 😀 The second type is bearish, created by heavy selling pressure, signaling potential downward movement.
• 😀 Smart money scales in over time and leaves unfilled orders behind, which makes certain order blocks significant.
• 😀 Most traders make the mistake of marking any zone with a big move as an order block, but many of these are ineffective.
• 😀 To spot high probability order blocks, watch for sharp, aggressive price movements and gaps in the market that need to be filled.
• 😀 A strong bounce from an order block after price returns to it signals that smart money is still active in the area.
• 😀 Confirm your setups by focusing on a break of structure (BOS) or change of character to ensure the market trend is shifting.
• 😀 Fresh, unmitigated order blocks—those that haven’t been touched by price yet—hold the highest probability for strong reactions.
• 😀 Combining order blocks with discount and premium zones can improve the precision of your trades and filter out weaker setups.

Q & A

What is the main purpose of using order blocks in trading?

The main purpose of using order blocks is to understand market movements by identifying key zones where institutions and smart money place their orders. This helps traders trade with more confidence, aligning their trades with the actions of institutional players.

Why do many traders still struggle with trading, even if they understand order blocks?

Many traders struggle because they misunderstand the concept of order blocks. They often mark random zones on the chart and expect the price to respect them, but they fail to recognize the underlying factors that make an order block effective, such as how institutions place their orders over time.

What differentiates order blocks from other random zones on the chart?

Order blocks are not random. They represent footprints left by institutions and smart money, showing areas where significant capital was placed, resulting in strong price movements. These zones have institutional orders that may still be unfilled, making them important for future price action.

What are the two main types of order blocks?

The two main types of order blocks are bullish order blocks, created by strong buying pressure signaling a potential upward movement, and bearish order blocks, formed by heavy selling pressure indicating a possible downward move.

How do order blocks help traders avoid chasing the market?

Order blocks provide key levels where the price may return. Instead of chasing the market during its initial move, traders can wait for the price to retrace to these levels, enter at the right time, and ride the move with greater confidence.

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

The three rules for identifying high-probability order blocks are: 1) Spot sharp, aggressive price moves indicating inefficiencies in the market. 2) Confirm the market's direction with a break of structure (BOS) or change of character. 3) Prioritize fresh, unmitigated order blocks that have not been tested yet.

What are inefficiencies in the market, and how do they relate to order blocks?

Inefficiencies are gaps created when smart money moves the market too quickly, resulting in areas where the price is likely to return. These inefficiencies signal potential order blocks where institutions have left orders that could be filled when price retraces.

How do you confirm the significance of an order block?

To confirm the significance of an order block, you need to check if the price has already returned to it. If the price hasn’t touched the zone yet, the order block is considered fresh. If it has touched the zone, observe how the price reacts; a strong bounce indicates continued institutional interest.

What is the difference between fresh, mitigated, and fully mitigated order blocks?

A fresh order block is untouched and offers the highest probability of a strong reaction when price returns to it. A mitigated order block has been tested but still holds significance if price reacts strongly. A fully mitigated order block has been tested multiple times with no strong reaction, meaning it has likely lost its importance.

How can discount and premium zones enhance the use of order blocks in trading?

Discount and premium zones help traders identify areas where price is considered cheap (discount zone) or expensive (premium zone). By combining order blocks with these zones, traders can focus on high-probability setups, such as waiting for a price pullback into the discount zone for a bullish order block or the premium zone for a bearish order block.