Order Block Entry VS Fair Value Gap Entry

Summary

This video script from 'Smart Risk' delves into the complexities of setting entry points for smart money traders. It clarifies the use of fair value gaps and order blocks, highlighting their effectiveness in different time frames. The script provides strategies for choosing entry points based on price action, aiming to maximize winning trades. It also discusses the challenges of inefficiency in retracement and offers insights on refining entry areas for better risk-reward ratios. The episode concludes with a practical example and a mention of useful trading tools and resources.

Takeaways

• 😀 Smart Money traders often face challenges in choosing between fair value gaps and order blocks for market entry points.
• 📈 Order blocks and fair value gaps are two distinct areas used by traders for executing positions in the market.
• 🔍 If the price frequently misses entry points, it may indicate over-refinement in trading strategies.
• 📊 In higher time frames like 1 hour or 4-hour, order blocks are more likely to be respected by the price compared to fair value gaps.
• 📉 Conversely, in lower time frames, fair value gaps are more likely to be respected by the price than order blocks.
• 💡 For a tighter stop-loss and higher reward-to-risk ratio, traders need to refine their entry area beyond just the extreme lower time frames order block.
• 🌐 The script recommends using the website 'fastb' for staying updated on financial news and fundamental analysis with its economic calendar and live streaming.
• 🛑 When using fair value gaps in lower time frames, placing a limit order at the highest point of the gap with a stop loss below the extreme order block can be effective.
• 🚫 There are scenarios where the price does not respect either order blocks or fair value gaps, often due to inefficiencies created during retracement waves.
• 🔄 Price may continue in its dominant direction without activating pending orders at order blocks or fair value gaps if it aligns with significant momentum from traders.
• 📝 The script suggests considering both order blocks and fair value gaps for entry points, with a focus on the context of the price's dominant direction and time frame.

Q & A

What are the two main entry points discussed for smart money traders in the script?

The two main entry points discussed for smart money traders are order blocks and fair value gaps.

Why might a trader choose to use the higher time frame order block for entry?

A trader might choose to use the higher time frame order block for entry because it can provide a clear indication of a change in character, signaling an upcoming bullish trend.

What is the potential downside of setting an entry at the highest point of the higher time frame order block?

The potential downside is that it could result in a very large stop loss, leading to a small reward-to-risk ratio, which exposes the trader to higher potential losses if the trade moves against them.

Why might the extreme lower time frame order block not be respected by the price?

The extreme lower time frame order block might not be respected because if it were hit every single time, the market would appear as a zigzag pattern everywhere, which is not realistic as price does not often make such deep retracements.

In what scenarios is the fair value gap more likely to be respected than order blocks?

In lower time frames, the price is more likely to respect the fair value gaps rather than order blocks located at the extreme areas.

What is the main reason behind the price not respecting the order blocks and fair value gaps in certain scenarios?

The main reason is the significant inefficiency created when attempting to retrace back to the fair value gap or order block located at the extreme, which struggles to resist the massive liquidity voids behind it.

How can a trader benefit from using the fair value gap for entry points in lower time frames?

Using the fair value gap for entry points in lower time frames can result in a higher hit rate compared to extreme order blocks, but it requires careful consideration of the potential risks involved.

What is the recommended approach when using the fair value gap for a bullish scenario entry?

The recommended approach is to place the limit order at the highest point of the fair value gap and position the stop loss below the extreme order block, keeping in mind the potential for a wider stop loss and reduced reward-to-risk ratio.

Why might a trader miss out on trading opportunities by solely relying on order blocks on lower time frames?

Relying solely on order blocks on lower time frames might cause traders to miss out on numerous trading opportunities because the price might not respect these blocks and instead continue in its dominant direction.

What is the importance of considering the dominant direction of the price when analyzing entry points?

Considering the dominant direction is crucial because when the price aligns with its primary direction, it absorbs significant momentum from executed orders, propelling the market in the price's dominant direction without activating limit orders at the order blocks and fair value gaps.

What is the role of the economic calendar and 24/7 economic live streaming in a trader's daily routine according to the script?

The economic calendar and 24/7 economic live streaming are essential tools for traders to stay updated on financial news and fundamental analysis, which can significantly influence their technical analysis and trading decisions.