Master Order Blocks to Trade like Banks (no bs guide)

Summary

This video script delves into the concept of 'order blocks' in trading, explaining how smart money uses these to manipulate the market. It outlines a three-step process to identify order blocks and three rules to determine their validity. The presenter shares a profitable trading strategy based on order blocks, emphasizing the importance of understanding market mechanics to trade effectively.

Takeaways

• 📈 Retail traders often enter buy positions after a price retracement, but this can lead to losses if they don't understand the market dynamics.
• 🏦 Auto blocks are areas where financial institutions and smart money enter large buy or sell orders, creating liquidity that can move the market.
• 🔍 To identify order blocks, look for a drastic and sharp price move followed by a retrace to the average entry level (AEL), marking the high and low of the candle before the move.
• ⚠️ Not all order blocks are valid. Three rules define a valid order block: presence of inefficiency, creation of a breakout structure, and being a one-time use.
• 📉 Inefficiency is indicated by a gap in the candle before and after a large price move, showing that smart money has entered the market.
• 📈 Breakout structure is created when price forms higher highs and higher lows, indicating an uptrend, and vice versa for a downtrend.
• 🚫 Order blocks are one-time use; if the price has already touched the order block, it becomes invalid for future trades.
• 📊 Market shifts signal potential trend changes, occurring when price breaks through the last higher low in an uptrend or the last lower high in a downtrend.
• 🎯 For a profitable order blocks trading strategy, wait for a market shift and then look for the inefficiency and order block to enter trades.
• 📚 Backtesting the auto block trading strategy is crucial to ensure its effectiveness for individual traders, as what works for one may not work for another.

Q & A

What is the main reason retail traders enter a buy position as described in the script?

Retail traders often enter a buy position when they see the price retracing after what they believe to be an upward movement, but this can be a trap set by larger financial institutions that can push the price back down to stop-loss levels before it goes up again.

What is an 'auto block' in the context of trading?

An 'auto block' refers to areas where smart money, such as large financial institutions, enter buy or sell orders in large amounts, creating liquidity that can significantly move the market.

Why do financial institutions sometimes push the price down to hit stop-loss orders before pushing it back up?

Financial institutions do this to grab liquidity by stopping out retail traders and then pushing the price back up, profiting from the volatility they create.

What is the significance of identifying order blocks in trading?

Identifying order blocks helps traders to understand where smart money is likely to enter trades, allowing them to potentially trade alongside these large players and profit from the resulting market movements.

What are the three rules for valid order blocks mentioned in the script?

The three rules are: 1) There must be a presence of inefficiency or momentum indicating smart money's entry. 2) The order block must create a break-off structure, indicating a trend. 3) Order blocks are one-time use; if the price has already touched the order block, it is considered mitigated and invalid.

How can a drastic and sharp price move indicate the presence of an order block?

A drastic and sharp price move, also known as an inefficiency, is likely due to large orders from smart money, which can indicate the presence of an order block that can be identified and used for future trades.

What is meant by 'break-off structure' in the context of order blocks?

A 'break-off structure' refers to the formation of higher highs and higher lows in an uptrend, or lower highs and lower lows in a downtrend, which signifies that the price is breaking through previous levels and establishing a new trend.

Why is it important to wait for a market shift before entering a trade based on an order block?

A market shift indicates a potential trend change, and waiting for this shift before entering a trade can provide a more accurate entry point and increase the likelihood of a profitable trade.

What is the purpose of the profitable order blocks trading strategy presented in the script?

The strategy aims to provide a method for traders to identify and trade with order blocks effectively, by understanding market shifts, inefficiencies, and the rules for valid order blocks, ultimately aiming to increase trading profitability.

How does the script suggest traders find the best entry points for trades based on order blocks?

Traders are advised to drop down to smaller time frames, such as the 15-minute or 5-minute charts, to look for inefficiencies and market shifts that indicate the best times to enter trades based on order blocks.

What is the importance of backtesting a trading strategy like the one described in the script?

Backtesting a trading strategy, such as the order blocks strategy, helps traders to verify its effectiveness and to understand how it might perform in different market conditions, ensuring it aligns with their trading style and risk tolerance.