Order Block Trading Strategy with Examples

In this article, I am going to discuss Order Block Trading Strategy with Examples. Order Block Trading Strategy is a trading method that involves identifying and trading off significant price levels on a price chart. Traders using this method look for areas where large buying or selling activity has occurred in the past, which could potentially act as areas of support or resistance in the future.

Order blocks can be found in any timeframe, from minutes to weeks, and can be used in any market, including stocks, futures, forex, and cryptocurrencies. Order block trading can be combined with other technical analysis methods, such as trend lines, moving averages, and oscillators, to confirm trades or to identify a potential trade setup

Here are the general steps involved in using the order block trading method:

1. Identify a price chart that shows clear areas of buying or selling activity, typically shown as a consecutive candle.
2. Locate the most significant areas of buying or selling activity, which is often referred to as “order blocks“.
3. Determine whether the price is likely to respect or break through the order block. This can be done by looking at the price action around the block.
4. If the price is likely to respect the block, consider entering a long or short trade near the block, with a stop loss order placed just below or above the block respectively

Below is an example of a nifty 50

Taken this chart during the day. Here I used avwap indicator along with the order block. Price reach confluence of order block and VWAP ZONE

NOW CHECK THE BELOW CHART. PRICE TURNED GREEN TO RED THAT DAY AND START FALLING FROM TESTED ORDER BLOCK ZONE

Core Concept of Smart Money Trading Method

This concept divides into 3 parts

SMART MONEY CONCEPT

1. Supply and demand
2. order block

SMART MONEY MARKET STRUCTURE

1. SD FLIP
2. CHoCH
3. BOS

SMART MONEY ENTRY TECHNIQUE

1. Liquidity hunting
2. Inducement

Order Block Trading Strategy System

What is Order Block in Trading?

Order Blocks are footprints left by the market when an impulsive move occurs. Order Block (OB) is the last opposite candle before the strong move that creates an imbalance in the market. Price is most likely to come back to those zones before it triggers another impulse move to continue his trend.

Why Order Block Zone in Our Chart?

• The market continued to decline after the bearish order block zone formed, which is proof that smart money was placing sell transactions when it formed (opposite of the bullish order block zone)
• Aggressive people want to buy or sell right away. To put it another way, you place a MARKET ORDER to buy or sell anything right now at the best price that is currently offered.
• Your post will not be filled all at once because it is so large. The position will be split as the price rises quickly, but it will fill quickly and you will be able to enter the entire position. The price is aggressively driven up or down by aggressive market participants using their market orders.
• So, the order block zone can only be seen once the price speeds away from the zone. It indicates that there was smart money buying or selling interest at the origin of that move

Why Does the Market Return to Untested Order Block Zones?

1. The smart money position will not be filled all at once because it is quite large.
2. When the order block zone was created, the smart money was unable to execute all of its trades. If they enter the market quickly, the price moves with them. By doing this, they will be forced to buy higher and sell lower. By keeping order blocks on the books, they find a solution to this problem.
3. The smart money leaves pending orders at the order block zones so that when the market returns to the order block zone, the trades they were unable to complete initially are executed, and the market moves back in the direction in which the order block zone was created. This allows the smart money to get their remaining trades placed.
4. Due to a Pending Block order.

Criteria For Valid Order Block Zone Trading

• A valid demand/supply zone is a zone, where prices rapidly move away with wide candle(imbalance) and beaks of structure or changes of character. So, three important factors to study to find a valid zone
• Liquidity hunting at order block zone. IN THE FORM OF Stop Hunt Candle / Fake out/candle trap OR PSY
• Imbalances move or sharp move in a short time SRC/AR CANDLE MUST (MOVE AFTRE ORDERBLOCK).
• beaks of structure/ changes of character (form 1 of 3 market structure)
• untested order block zone FOR entry

Liquidity hunting at order block zone. IN THE FORM OF Stop Hunt Candle / Fake out/candle trap. Will cover this concept in more detail later

Imbalance move after order block zone

An imbalance refers to a situation where there is a significant difference between the number of buy orders and sale orders for a particular security or asset. This can occur when there is a large amount of buying or selling pressure in the market, which can cause the price of the security to move rapidly in one direction

1. Momentum should increase. suggest an imbalance in price
2. Order block zone should not test the next 3 candles and also in a bullish order block previous candle low should not breach in the next 3 candle

In the above example price imbalance with 3 consecutive candles making a higher high and higher low. Now check the below example of price in balance. Here, after 2 candle price form a balanced structure.

BELOW IS AN EXAMPLE OF THE NIFTY 50 CHART

Volume in Order Block Zone Trading Strategy

A higher volume at a particular level could indicate that it is a stronger level of support or resistance.

1. Either high-volume block candle and follow-through
2. Or follow-through volume increasing after block candle formed

In the first example high volume order block candle wands in 2^nd example low volume order block but the volume increases. Both cases are valid to order block.

BELOW IS THE CHART OF THE SAME NIFTY50 WITH THE VOLUME

Order Block move should Break the Market Structure

BEFORE going forward lest understand valid breakout vs invalid breakout

Untested order block for entry

Prefer only untested ob zone