Order Blocks Explained: 3 Best Strategies Revealed

hey traders in this video I've put together the Ultimate Guide to mastering order blocks we'll dive deep into both the basics and Advanced Techniques whether you're a beginner or an advanced Trader be sure to watch the entire video so you can understand every Concept in detail I'll also reveal three high probability trading strategies using order blocks by the end of this guide you'll have a solid understanding of how to leverage order blocks for consistent profits overall this video serves as a complete masterclass on trading with order blocks so let's dive in here are the topics

covered in this video first let's start by understanding what an order block is an order block is a key area on the chart where significant amounts of capital have entered the market typically by big Banks or large institutions often referred to as smart money since they trade with substantial Capital their actions usually cause noticeable price movements on the chart so if you notice the price moving sharply from a specific area like this one it could indicate that smart money has taken a position large buy orders are needed to drive the price up this quickly the

initial area where these trades are executed is known as an order block order blocks can be of two types bullish order blocks which are caused by large buy orders and bearish Order blocks which are caused by large sell orders for this video I'll color bullish order blocks as blue and bearish Order blocks as purple but of course you can use any color you want once an order block is identified it can provide potential trade opportunities as the price tends to retest and bounce after hitting that area for example if you bought at the order block

here it would have resulted in some nice profits now you might be asking yourself isn't this the same as support and resistance while both order blocks and support resistance are considered key levels they are not the same as there are major differences between them first difference is how they form order blocks are formed based on significant price movement on a chart for example if the price moves significantly from an area you can draw an order Block in contrast support and resistance levels require prior rejections to form for example if the price once rejected this level

here and another rejection happened here then we can draw support level second difference is how they are drawn on the chart order blocks are typically drawn as thick zones or areas while support and resistance levels are usually drawn as lines even if they're drawn as zones they're usually thin zones not as thick as order blocks third difference is the number of retests order blocks are typically a one-time use meaning if they are retraced once they're done you can not use them multiple times in contrast support and resistance levels can be retraced multiple times while order

blocks and support resistance differ they can be used together for example if an order block forms while the price is also at a resistance level this is called a Confluence finding this kind of setup is ideal as the price has a higher chance of reacting to an area of Confluence now before we can trade using order blocks we need to know how to correctly identify them remember in our very first example I mentioned that if the price moves significantly from a point we could draw an order block well it's not quite that simple a significant

price move doesn't automatically mean that an order block is present there are specific rules that determine whether an order block is valid so here are the three important rules for a valid order block these are crucial as you won't be able to trade the strategy if you don't get these down rule number one for a price to be classified as an order block it must create some sort of Gap afterward this Gap is what people refer to as inefficiency or imbalance so anytime you hear these terms it simply means Gap let's see an example so

you can understand better here we have two similar price movements both moved upward significantly however notice the key difference the one on the left has a gap between the first candle's upper Wick and the third candle's lower Wick while the one on the right doesn't have it as the Wicks are intersecting with the candle's full body this Gap is what's called an inefficiency or imbalance so even though both setups show significant upward movement only the left one counts as a valid order block because there's inefficiency to draw the order block take the first candle before

the inefficiency and draw a rectangle over the full candle from the top Wick to the bottom Wick rule number two an order block needs to be unmitigated order blocks are generally a one-time use if the price touches an order Block it's no longer considered valid meaning it can't be tested or retraced for example let's say you spot a gap or inefficiency in the price so you draw an order block if you see the price or even just a wick touching that order block it means the order block is no longer valid because it has now

been tested while there are strategies to reuse a tested order block I'll cover that later in the video but for now just remember that an order block is generally a onetime use rule number three the most important rule is that an order block must lead to a break of structure or a change of character afterward now for those of you who might not be familiar with these terms I'll give a quick recap but if you already know what they mean feel free to skip ahead to the Tim stamp displayed on the screen so basically we

know that markets have Trends uptrends and downtrends let's take an uptrend as an example during an uptrend the market doesn't just move straight up instead it moves in a structured way forming what's called higher highs and higher lows they're called higher highs because each high is higher than the previous one and higher lows because each low is also higher than the previous one on the flip side in a downtrend the price forms lower highs and lower lows these are called Lower highs because each high is lower than the previous one and lower lows because each

low is also lower than the previous one in a market structure like an uptrend each time the price breaks the previous highs and creates higher highs like this it's referred to as a break of structure now of course markets don't stay in an uptrend Forever at some point the trend will change this shift happens when the previous lows are broken leading to the formation of lower lows remember before the break we have higher lows but once the price breaks those levels they become lower lows this break of the previous lows during an uptrend is called

a change of character why because it shifts the character of the market from an uptrend structure to a downtrend structure and the cycle repeats itself during a downtrend the price forms lower highs and lower lows when the previous lows are broken this is now referred to as a break of structure in the future if the price breaks the previous highs and forms higher highs during this downtrend that's called a change of character because the price shifts from a downtrend structure to an uptrend structure so that was a quick overview of what a break of structure

and change of character are now how does all of this relate to order blocks for an order block to be valid it must lead to either a break of structure or a change of character afterward let's see an example in this chart we see a significant upwards move coupled with a gap or inefficiency so there's a possible order block here however this doesn't mean we can immediately draw an order block as we need to first see if the market forms either a break of structure or a change of character afterward right here we notice that

the price hasn't yet formed a break of structure as it hasn't broken these previous highs so we wait for the price to develop further now once the price does break this High forming a break of structure that's when we can draw our order block on the first candle before the inefficiency and again we see the price move significantly upward coupled with inefficiency followed by a break of structure as the price forms higher highs so this makes it another valid order block that we can draw now let's look at another example in this chart the price

is forming higher highs and higher lows and we have a possible order block here due to this inefficiency however since the price hasn't formed higher highs we can't count this as a valid order block yet after waiting some time the price moves down and forms another possible order block but this time it's a bearish one this is shown by the significant downward movement coupled with inefficiency on this red candle then the price breaks the previous lows of the structure forming lower lows since it made lower lows during this uptrend it counts as a change of

character and the market structure has now shifted to a downtrend so we'll focus on the latest order block that aligns with the current Trend which is this bearish order block the previous bullish order block isn't valid because the price didn't form higher highs however this bearish one is valid because it resulted in a change of character here we see a significant upward movement coupled with inefficiency suggesting a possible order block however since the price hasn't formed a break of structure yet this order block isn't valid at this point after some time we notice the price

moves downward and then back up forming another inefficiency indicating another possible order block this time the price does form higher Highs but it's within a smaller structure this makes it a valid order block within this smaller structure however if we look closely we also see that the price made higher highs within the previous larger structure this means the earlier possible order block is now a valid order block as well since the price formed higher highs within that larger structure so when drawing order blocks it really depends on which structure the order blocks are formed within

so to recap the three rules to identify a valid order block are first it must create a gap also known as inefficiency or imbalance second it must remain untested or unmit ated third a break of structure or change of character must occur afterward identifying order blocks is a great skill but the real excitement comes when you start using them in a trading strategy now I'm about to reveal three order block strategies that can take your trading to the next level strategy number one multi-timeframe confirmation for this first strategy start by finding an order block on

a higher time frame in this example we're using the Bitcoin USD 4H hour chart at a glance we can see two significant price movements the first one is moving upward here and the second is moving downward here both of them also have inefficiencies so we have two possible order blocks a bullish one and a bearish one however let's double check if these two potential order blocks are actually valid for this bullish one the price did move upward with inefficiency but it didn't form a clear break of structure plus the price retested it afterward so it's

no longer unmitigated for the bearish order block the price clearly formed lower lows creating a break of structure plus it's unmitigated So based on our analysis only this bearish order block is valid once you've identified the correct order block the next step is to wait for the price to retrace back to that order block the moment the price touches the order block we now move on to the next step of the strategy which is confirmation we're trying to confirm whether the price will actually bounce off this order block to do that we switch to a

lower time frame like the 15-minute chart on the 15minute chart we're looking for any signs of bearish momentum to prove that the price will reverse from this order block you can use any type of confirmation tools whether it be an indicator like the ma CD finding a bearish Candlestick pattern or spotting a change in Market structure basically anything that confirms that the price is likely reversing from this level now my favorite confirmation tool is the bare bearish engulfing Candlestick pattern as it's simple yet effective for giving early signals a bearish engulfing pattern occurs when a

smaller bullish candle is immediately followed by a larger bearish candle that completely engulfs the previous one this indicates a potential reversal from bullish to bearish once you spot it you can open a cell position right after the pattern has formed then place your stop loss slightly above the order block and set your takeprofit at 2x the size of your stop loss as you can see this strategy can lead to Some solid profits here's a cheat sheet that you can use when trading on multiple time frames if your high time frame is the weekly use the

4H hour as your low time frame if your high time frame is the daily use the 1 hour as your low time frame if your high time frame is the 4H hour use the 15minute as your low time frame if your high time frame is the 1 hour use the 5 minute as your low time frame and that's all you need for strategy number one but before we continue I want to talk about something that can help you trade these strategies more effectively simple effects simple effects is a free trading platform that offers all the

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deposit bonus if you deposit at least $100 so when you put $100 on the platform simple effects will give you an extra $40 to trade with give it a try I think you'll love it strategy number two inducement traps an inducement trap is a specific setup that involves a minor key level forming near a major order block take this example we have a major order block forming below and a minor key level forming above it due to multiple rejections this minor key level is also referred to as an inducement the strategy is called an inducement

trap because in many cases the price will break this minor key level only to retrace to the major order block before reversing back up traders who bought at this seemingly obvious key level expecting a bounce would often get stopped out instead so if you spot a setup where there's a minor key level sitting above a major order block you can cue a buy order in the middle of that major order block this way your buy order only gets triggered if the price touches the order block offering you a high reward trade but if the price

doesn't reach the order block that's perfectly fine because no position was opened while this may seem like a random and specific pattern it's actually more common than you might think and there are logical reasons to why this setup works first let's understand that large institutions want to enter the market at an ideal price but due to their massive Capital they can't do so without moving the price unlike retail traders who can enter positions easily smart money couldn't enter positions that easily as their large orders would push the price up causing their average entry price to

be higher so in order to enter at a lower price they use inducement levels after entering the market and forming an order block they push the price back down to that order block by traing traders who bought at inducement levels expecting a bounce this is effective because Traders often Place stop losses just below key levels meaning just a little bit of selling pressure could trigger these stop losses which in turn leads to more selling this allows smart money which entered at the previous order block to re-enter at that price driving the price back up so

that's the basic logic behind why this pattern works now let's look at a real example in this chart the price moves sign ific L upwards with an inefficiency followed by a break of structure making this a valid order block after this upward movement we identified an inducement Zone as the price formed multiple rejections at this support level now because we have a setup where there's a major order block below and a minor support level near it this could be a potential inducement trap this means the price could break the minor support level and retest the

order block so we place a limit byy order in the middle of the order block and wait as you you can see the price moved downward broke the inducement level and triggered our buy order at the order block after the order is triggered we place a stop loss just below the order block and set our takeprofit at 2 to three times the size of the stop loss you could also Target the inducement Zone as your takeprofit as you can see this trade turned out to be profitable strategy number three breaker blocks in the very first

part of the video I mentioned that order blocks are typically a one time use but there's actually a way to take advantage of order blocks that have been broken this strategy is called breaker blocks what is a breaker block a breaker block is a previously valid order block that has been broken once an order block is broken the price May retrace back to that level and it can act as a potential resistance level where the price May reject this level this gives us an opportunity to short at the breaker block keep in mind that breaker

blocks are typically onetime use after the price breaks and retests the level their effectiveness is usually done let's break down this chart example in this chart we can see the price move significantly upward paired with inefficiency we also see the price made higher highs here so we can draw an order block at this candle but then the price moved downward and actually broke the order block this move also created a change of character as the price broke below the previous lows indicating that the trend has shifted from bullish to bearish now as the price retraces

back toward the previous order block it can now act as a potential resistance Zone this is a prime area to open a short position then place your stop loss slightly above the breaker block and set your takeprofit at two times the size of the stop loss and as you can see the price rejected this order block hit our Target and resulted in a nice profit now that you know these strategies it's time to take action and start using them in real trades that's why I've partnered with simple effects to make your trading easier simp simple

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you can get more rewards as you deposit more so big thanks to simple effects for helping me make this video possible that's it the exact step-by-step process to find and trade order blocks however if you're a complete beginner with no trading experience I recommend you try a different strategy first in this video I explain the exact strategy any beginner can use to start making consistent profits from Trading thanks for watching and I'll see you in the next one