order blocks are special candlesticks that start big price moves they're not just any candles they're the ones big Market players use to kick off trends when you see a big Market move it didn't just happen by chance it started somewhere and that starting point is an order Block it's where the big players the market makers set up and get ready to push the price around order blocks form because of liquidity the big players need a lot of liquidity to make their moves and when they can't find enough liquidity to fill their orders they make it
themselves they do this by opening positions in both directions creating fake counter liquidity this lets them fill up the volume they need and then push the price where they want it to go there are two main types of order blocks you need to know about bullish order blocks which show up when the price drops then sudden suddenly shoots up and bearish Order blocks the price climbs up then suddenly drops order blocks are like pressure points in the market they're areas where the big players the market makers have put a lot of their orders when the
price comes back to these areas there's a lot of potential energy waiting to be released think about it when a big player wants to buy a lot of stock or currency they can't just place one big order that would spike the price and they'd end up paying way more than they want to so instead they break up their big order into smaller pieces they might start by selling a little bit this pushes the price down and scare some other Traders into selling too now there's more Supply in the market which is exactly what the smart
money wants they can now start buying at these lower prices this process creates our order block the initial selling creates the block part the area on the chart where a lot of orders were placed and because this is where the smart money started their buying we know they're likely to defend this area if the price comes back to it that's why order blocks are so powerful to trade you're not just guessing where the price might go you're looking at where the big money has already shown its hand this is why order blocks will help you
place better trades they give you a solid spot to put your own orders when you're entering a trade this isn't just guesswork it's based on where the big players are putting their money you're not just picking random points you're using levels that have real significance in the market now here's the reality order blocks aren't Magic Bullets they only work if you know how to spot real liquidity in the market on their own order blocks don't mean much in fact most of them break as soon as the price comes back to them I'll explain later the
secret to find the best areas but for now think about this why does the price bounce off these order blocks well it's all about the big players average price if the price drops below a bullish order block or jumps above a bearish one those big players start losing money and trust me they don't like losing money so they push the price back it's like they're protecting their Turf this is why you often see that price returns to an order block before continuing its main move remember this part order blocks are based on a lack of
liquidity when smart money needs to open positions the market makers aren't just reacting to the market they're actively shaping it they're creating the conditions they need to make their moves let's say we have a bullish order block the price has gone up from this area but now it's coming back down as it approaches the order block several things might happen first the big players who bought here before might buy again they know this level worked before so they're happy to add to their position second traders who missed the first move up might see this as
their second chance they'll start buying adding to the upward pressure also traders who sold short after the first move up might start to get nervous if the price bounces here they'll be in trouble some of them might start buying to close their shorts adding even more upward pressure all of these factors combined to make the order block a strong support level and if the price does bounce here it confirms the strength of the order block making it even more likely to work again in the future now let's break down the anatomy of an order block
we are looking for a specific shape here for a bullish order block we want to see a move down then price shooting up for a bearish order block price climbs up then suddenly drops now we're not just looking at a basic reversal we want the last push the last candle before the Big Move it's the final gasp of the old Trend before the new one takes over this is where the big players make their move you're looking for the last candle before the reversal in a bullish scenario it's often the last Red candle before a
string of green ones for bearish setups it's the last green one before the red candles take over so for a bullish order block we are looking at a down candle but not just any down candle we want want the lowest red candle in the sequence for a bearish order Block it's the highest green candle these are our signal flares they tell us where the action is happening some Traders use the mean threshold for identifying these zones it's like the equator of order block we draw it right through the middle at the 50% level of the
candle it's like a discount premium zone for the order block this is where we expect the price to behave itself if price respects this level it's a good sign our order block is legit it's all about validation a strong order block shouldn't see price dip below this midpoint for bullish blocks or rise above it for bearish blocks if it does it might be telling us our block isn't as solid as we thought for a bullish order block to be confirmed we need to see a more recent candle trade through the high of our red candle
marking the zone for a bearish block we need a candle to trade through the low of our highest green candle and for a top-notch bullish order block we don't want to see price trading below the midpoint of that candle for a bearish block we don't want price popping above the midpoint of the green candle now let's zoom out a bit where do we find these order blocks we need to look at the the highs and lows of the market these are the optimal reversal spots the turning points where the smart money makes its move now
let's talk about the mitigation of order blocks mitigation is just a fancy word for cleaning up leftover orders after a big player has bought what they wanted the price often swings back to the order block that's because that's where those initial orders are sitting the big player wants to close them out ideally at break even this back and forth creates the swings we see in the market it's like a dance buy and then sell create an order block then mitigate it so how can you use this info well it gives you a road map of
sorts when you spot an order block you can expect price to come back to it at some point that's your chance to hop on the right if you see a bullish order block you're looking for buy opportunities for bearish ones you're thinking about selling remember it's all about liquidity or rather the lack of it when the market makers need to open a position they often face a problem there's not enough liquidity to fill their orders without moving the price too much so they get creative they open positions in both directions it's like they're creating their
own liquidity pool they fill up the volume they need then push the price where they want it to go this is what creates our order block when they do this they are left with some positions that are now losing money and like I said big players don't like losing money as us retail Traders they want to close this positions at break even and the break even point is right back at our order block this is why price often comes back to test an order block if it's not random it's the big money trying to clean
up their positions and for us smaller Traders this is an opportunity here's the difficult part not every order block gets hit and some get blown right through how do you know which ones to trust it all comes down to liquidity liquidity is just a fancy word for where the money is it's where a lot of buy or sell orders pile up often these are at old highs or lows big players love to Target these spots because that's where they can find enough orders to fill their big positions so when you're looking at order blocks pay
attention to nearby liquidity if there's a juicy pool of orders just beyond the order block chances are good that price will come back to hit it this is part of the mitigation phase mitigation is when price swings back to the order block remember those leftover orders from the initial move this is the time when smart money cleaned those up they're closing out positions getting back to even for us retail Traders this is opportunity knocking when price swings back to an order Block it's often setting up for another move in the original Direction so if it
was a bullish order block and price comes back down to it that might be your chance to buy some may buy as soon as price touches the order block others wait for signs that the mitigation is done price action close maybe a rejection candle or a break of a small trend line we'll talk about the best entries later there's also a concept called a mitigation Block it's like a cousin to the order Block it's all about how price behaves afterwards a mitigation block forms when the market fails to make a new high or L it's
a sign that the current move might be running out of steam it's a failure swing here's how it plays out let's say the Market's been going up it hits a high pulls back then tries to push higher again but this time it can't quite reach the old high that's a mitigation Block it's a hint that the uptrend might be in trouble the opposite can happen in a downtrend price makes a low bounces then tries to go lower again but it can't quite break the old low that's a bullish mitigation block it suggests the downtrend might
be losing steam now don't confuse these with breaker blocks a breaker actually does make a new high or low it breaks the old level a mitigation block falls short and why does this matter well it's all about understanding what the big players are up to a mitigation block suggests they couldn't push price where they wanted maybe there wasn't enough liquidity or maybe opposing players stepped in for you it's a heads up if you see a mitigation block form it might be time to start looking for a reversal now before we continue let us know in
the comments what topics you'd like us to cover in future videos and drop us a like to help us with YouTube algorithm order blocks fit into the bigger picture of Market structure Market structure shows the overall flow with its twists and turns order blocks are areas where the flow can suddenly change direction in a bullish Market you'll see a series of higher highs and higher lows and each swing up is usually kicked off by a bullish order block these blocks are like stepping stones marking the path of the uptrend Now flip that for a bearish
market you've got lower lows and lower highs each drop often starts with a bearish order block but here's where it gets interesting order blocks don't just go with the flow they can signal when the flow is about to change this is where Market structure breaks come in a market structure break happens when price bust through a key level in an uptrend it's when price makes a lower low in a downtrend it's a higher high these brakes are big deals they're like road signs telling you the trend might be changing now guess what often comes right
before this breaks that's right order blocks the market coils up at the order block then a structure break follows here's how it might play out let's say we're in an uptrend we've got those higher highs and higher lows then then price forms a bearish order block price drops from there and this time it doesn't just make a higher low it smashes right through the previous low that's a structure break this combo order block plus structure breake is very powerful it's telling you something big might be happening the trend that's been chugging along might be running
out of steam when you spot an order block don't just focus on on that single level zoom out look at the bigger picture where is this block in relation to the overall trend if it's going with the trend it might be a continuation signal price could bounce off it and keep moving in the same direction but if it's against the trend it could be setting up for a reversal if price respects the block and bounces it could be a continuation of the current Trend but if it breaks through especially with a strong move watch out
that could be the start of a new trend this is where those Market structure breaks come in if you see price break through a significant high or low after hitting an order block that's a big deal it's like the market is shouting at you that something's changing another setup to watch for is the failed order block this is when price comes back to an order block but doesn't bounce off it like expected in instead it pushes right through this can also be a tradable signal failed order blocks often lead to strong moves that's because a
lot of Traders are caught on the wrong side they were expecting the block to hold and now they're scrambling to get out this can fuel a big move in the opposite direction a quick word on time frames order blocks work on all time frames but they are most powerful on the higher ones an hour order block is usually more significant than a 5-minute one but that doesn't mean you should ignore the lower time frames in fact you can use multiple time frames together find the big order blocks on the higher time frames then zoom in
the lower ones for more precise entries it's like using a map and a GPS together we'll talk about this later high probability order blocks are followed by fair value gaps these happen when price jumps from one level to another leaving a gap but unlike a regular Gap there's some trading activity in between this imbalance signifies a sudden surge in buying or selling pressure indicating the presence of institutional orders these gaps show up as big candles on charts the candles next to them don't touch fully to spot a fair value Gap look at three candles in
a row in a bullish Gap the low of the third candle is above the high of the first for a bearish gap the high of the third candle is below the low of the first these gaps aren't just random they show where big players made Moves when a large order hits the market it can cause a gap and the market often wants to fill these gaps later both order blocks and fair value gaps are about imbalances in the market when price jumps it means one side buyers or sellers took control fast this quick move can
leave some trades unfilled fair value gaps are all about speed when price moves too fast it can leave these gaps behind and the market wants to fill them that's why they often act like magnets pulling price back to them later order blocks and fair value gaps work well together you will often and bullish order block followed by a fair value Gap this is like a double confirmation of a key buy level or you might see price move away from a bearish order block followed by a fair value Gap later when price comes back to fill
that Gap it might also retest the order block this could be a high probability setup also don't forget about the bigger picture order blocks and fair value gaps are just parts of Market structure they fit into larger Trends and patterns always keep the overall Market Direction in mind the best order blocks have three key Parts a liquidity run a Breakin Market structure and a fair value Gap let's break this down first a liquidity run this is when price moves fast to hit a bunch of orders it's like a quick rate but price shoots up or
down grabbing liquidity this move often tricks Traders they think the trend will keep going but it's just a setup for a reversal next we have a break in Market structure this means the Market's Behavior changes it could be a shift from an uptrend to a downtrend or a continuation in the previous Trend or it might be a big move after a quiet period this break shows something new happening a new high or a low must be formed from the order block last the presence of a fair value Gap when you find all three of these
conditions together you've got a high quality order Block it's like a perfect storm for trading let's say price has been going up for a while then it makes a quick Spike higher this Spike might hit a bunch of stop losses above the market that's our liquidity run right after this Spike price drops hard it falls below recent lows this is our break in Market structure the uptrend is now in question as price Falls it leaves a fair value Gap just below the order block there's also a liquidity Zone this whole setup the spike up the
drop down the fair value Gap and the liquidity Run Forms our order block if price comes back to test it later that's a decent short opportunity the same for a bullish order Block it's all about reading the big player moves the liquidity run is smart money pushing price to an extreme they're shaking out weak hands the breaking structure shows their true intent and the Gap shows how fast and strong their move was these high quality order blocks are rare you won't see them in every day but when you do they are worth paying attention to
another signal price has been falling then it makes a quick drop lower this might trigger a bunch of sell stops there's our liquidity run but right after price jumps apart it breaks above recent highs this is our change in Market structure the downtrend is now in doubt as price moves up it leaves a fair value Gap above the order block a potential liquidity Zone this makes it a spot to watch for future buy trades again the liquidity run is smart money pushing price to extremes the breaking structure is them showing their hand and the Gap
shows the power of their move always consider the current market context When selecting your order blocks prioritize those that align with the prevailing trend Direction and fall within the most recent price swing in an uptrend focus on bullish order blocks that form within the current upswing rather than bearish order blocks from previous downswings and when you find these high quality blocks it's best to wait wait for price to come back to the block then look for signs it's reacting maybe it stalls there or it might make a small move and reverse these are are clues
for potential trades and please be realist not every order block will lead to a good trade a successful order block strategy combines Trend analysis order block identification and precise entry timing first you need to figure out which way the market is moving you'll want to look at a bigger picture so use a higher time frame chart let's say you pick the hourly chart on this chart you are looking for for the current order flow in this case an uptrend now that you know which way the market is moving it's time to find a good spot
to enter your trade the order block should match the overall trend as the trend is up look for a bullish order block before the order block forms price should have taken out some liquidity a bunch of stop losses sitting just below a low point in an uptrend if price dips down and triggers that stops before shooting back up that's a liquidity run then the order block should trigger a break in Market structure this shows strength and commitment to the move the size of the order block candle matters to generally the bigger it is the more
significant it might be it's like a bigger footprint it shows that more Traders were involved also pay attention to how price reacts after the order block forms If It Moves away quickly and forms a fair value Gap even better remember not every order block will lead to a good trade your job is to find the best opportunities not to trade every signal you see another tip look for order blocks that line up with other technical factors maybe it's at a key Fibonacci level or it matches up with a trend line or a moving average the
more reasons you have to believe believe in an order block the better once you've spotted a promising order block on the higher time frame it's time to zoom in for a closer look this step is all about finding the perfect moment to enter your trade timing your entry so you switch to a lower time frame chart if you were looking at an hourly chart before you might zoom in to a 5-minute chart this gives you a much more detailed view of price action your plan here is to wait for price to come back to your
identified order block Zone first check for realignment this means the price action on your lower time frame should match up with the trend you saw on the higher time frame as the bigger trend is up you want to see bullish signs on the smaller time frame too look for a smaller version of the order block you found earlier as you're in an uptrend you're searching for a bullet order block on this lower time frame an order block inside the bigger order block you could also look for a small liquidity grab just before your entry this
is like a mini version of the liquidity run you saw on the bigger time frame it might look like price dipping down to trigger some nearby stop losses before moving in your expected direction another tip to pinpoint your entry look for any patterns forming on your lower time frame chart if you see small double bottoms that's a decent setup or maybe there are small change of character price is breaking previous swing highs and it's ready to go higher remember the goal here is to fine-tune your entry you're not changing your overall view of the market
you're just trying to get the best possible entry price the plan is to enter your trade on the breakout of the lower time frame order block for this buy order you place your stop loss just below a recent swing low and please give it enough room to breathe don't try to be too precise with your stop your take profit should be ideally at least three times higher that your risk but don't just pick a random number look at the chart and find the next logical High Point within the higher time frame Trend and consider using
multiple take-profit levels you could close half your position at your first Target then let the rest run to a higher Target here's a pro tip order blocks must have a liquidity pool to Target identify clear liquidity pools above your chosen order block these pools act as magnets for price they are like a road map for potential price movement after the order block is triggered in this case we see a bullish order order block with a cluster of previous swing highs above it this presents a clear liquidity pool that price is likely to Target once the
order block is triggered now if you want to learn other smart money tactics you need to watch one of these videos next
