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.