Everything you need to know about order block 5 RULES | TUTORIAL
Today we're going to talk about orderblocks. Very simply, an orderblock is the support and resistance of big players. It is stronger and more important than what you draw on a chart expecting a price reaction by classical technical analysis.
This works absolutely everywhere in cryptocurrency, forex, and the stock market.
I have deduced for myself 5 rules of confirmation, and now we will go over each of them. Let's start with schemes and end with an example on a chart.
Orderblock is a candlestick that shows purchases or sales of large capital. When a bullish orderblock is formed, an accumulation or reaccumulation takes place in order to further markup the asset. When a bearish orderblock is formed, a short position is accumulated or reaccumulated. With the purpose of further asset markdown.
The first rule is liquidity.
We have a zone from which the price gets a reaction and goes in the opposite direction. This forms a support zone for those who trade classic technical analysis. Traders place their orders in this zone, which is what the big capital hunts for.
Accordingly, this level is pierced by the flow of orders, which activates these stops.
This is how liquidity is removed from the area.
The last bearish full-body candle will be our orderblock. It is important that it updates past lows. An analogy would be the wicks of candle, which removes liquidity from past lows. The wick of a candle in this case is an orderblock on a lower TF.
The second rule is confirmation
After withdrawal of liquidity we expect confirmation of this orderblock - that is absorption and movement in the opposite direction.
The confirmation should be impulsive. That is, we should not see how the price is stuck in this confirmation. It concerns the absorption (updating) of the order block. It is possible inside the candle (orderblock). But personally, I try to take the "book variant".
Local consolidations can indicate the weakness of the movement. It doesn't mean that the orderblock will not work out in the end, but the probability decreases.
The third rule is structure breaking (bos)
One of the key points is the breakdown of structure that this orderblock provides. This is how we can understand the mood of the market and the intentions of big capital.
In this example, we can highlight the main structure with the yellow line. It is after updating a significant structural element that we can be almost sure of the truth of our orderblock.
If we don't see a break in structure, then this movement may just be a correction within a downtrend. So keep an eye on this one.
The fourth rule is the law of force (momentum)
After confirming our orderblock, we can see a prolonged correction in the OTE (make a Fibo). That is, we should see an impulse and after it a slow sluggish movement downwards, which will also form liquidity behind each local high. This is not a necessary factor, but if it is present, the probability of a trend reversal will increase many times over.
The fifth rule - the volume and spread of candles
The candlesticks should be full-bodied with increased volumes. It will be important to monitor the "distance" that the price has done. All these factors will also indicate the veracity of the movement. This recommendation concerns more about swing trading, moments when the price is in a trend for a long time without a serious correction and test of the formed order block.
Examples on the chart
On the daily TF I marked a Sell to Buy move. I marked it this way because there were no warrant blocks to satisfy me on the higher timeframe. This area will act as a zone of interest.
The structure on the Hourly TF looks like this. Consequently, we expect a confirmation of our orderblock through a break of the structure. The price entered the sell to buy zone and tested the order block, which was formed from the wick of the candle.
We saw an impulse exit and watch the price go up sluggishly, forming liquidity behind each low. Therefore, we expect an orderblock test.
I recommend backtesting on chart history to better understand how order block works. Thank you for your attention, I hope it was useful
This works absolutely everywhere in cryptocurrency, forex, and the stock market.
I have deduced for myself 5 rules of confirmation, and now we will go over each of them. Let's start with schemes and end with an example on a chart.
Orderblock is a candlestick that shows purchases or sales of large capital. When a bullish orderblock is formed, an accumulation or reaccumulation takes place in order to further markup the asset. When a bearish orderblock is formed, a short position is accumulated or reaccumulated. With the purpose of further asset markdown.
The first rule is liquidity.
We have a zone from which the price gets a reaction and goes in the opposite direction. This forms a support zone for those who trade classic technical analysis. Traders place their orders in this zone, which is what the big capital hunts for.
Accordingly, this level is pierced by the flow of orders, which activates these stops.
This is how liquidity is removed from the area.
The last bearish full-body candle will be our orderblock. It is important that it updates past lows. An analogy would be the wicks of candle, which removes liquidity from past lows. The wick of a candle in this case is an orderblock on a lower TF.
The second rule is confirmation
After withdrawal of liquidity we expect confirmation of this orderblock - that is absorption and movement in the opposite direction.
The confirmation should be impulsive. That is, we should not see how the price is stuck in this confirmation. It concerns the absorption (updating) of the order block. It is possible inside the candle (orderblock). But personally, I try to take the "book variant".
Local consolidations can indicate the weakness of the movement. It doesn't mean that the orderblock will not work out in the end, but the probability decreases.
The third rule is structure breaking (bos)
One of the key points is the breakdown of structure that this orderblock provides. This is how we can understand the mood of the market and the intentions of big capital.
In this example, we can highlight the main structure with the yellow line. It is after updating a significant structural element that we can be almost sure of the truth of our orderblock.
If we don't see a break in structure, then this movement may just be a correction within a downtrend. So keep an eye on this one.
The fourth rule is the law of force (momentum)
After confirming our orderblock, we can see a prolonged correction in the OTE (make a Fibo). That is, we should see an impulse and after it a slow sluggish movement downwards, which will also form liquidity behind each local high. This is not a necessary factor, but if it is present, the probability of a trend reversal will increase many times over.
The fifth rule - the volume and spread of candles
The candlesticks should be full-bodied with increased volumes. It will be important to monitor the "distance" that the price has done. All these factors will also indicate the veracity of the movement. This recommendation concerns more about swing trading, moments when the price is in a trend for a long time without a serious correction and test of the formed order block.
Examples on the chart
On the daily TF I marked a Sell to Buy move. I marked it this way because there were no warrant blocks to satisfy me on the higher timeframe. This area will act as a zone of interest.
The structure on the Hourly TF looks like this. Consequently, we expect a confirmation of our orderblock through a break of the structure. The price entered the sell to buy zone and tested the order block, which was formed from the wick of the candle.
We saw an impulse exit and watch the price go up sluggishly, forming liquidity behind each low. Therefore, we expect an orderblock test.
I recommend backtesting on chart history to better understand how order block works. Thank you for your attention, I hope it was useful
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