hey Traders and welcome to another episode of smart risk trading without the skill to identify valid and highquality Order blocks can be extremely risky and may result in significant losses order blocks often overlooked by many play a pivotal role in executing well-informed trading opportunities and are a Cornerstone in the strategies of smart Money traders however many Traders struggle to identify valid and highquality Order blocks putting their trades at risk today in this Advanced episode we are diving into various Candlestick order block types trading strategies and price actions associated with order blocks that you might encounter
in the market but that's not all we'll break down the key criteria and rules that elevate an order block to a high probability trade so Traders if that's something you're interested in please give this video a thumbs up to show your support and subscribe to our Channel if you are new see you after intro [Music] welcome back Traders so let's get started now let's dive deep into the details of the order blocks and see what is the exact definition of the order Block in the bearish scenario order block refers to the Zone corresponding to the
last bullish candle before a sharp and substantial downward movement that generates a valid break of structure similarly in the bullish scenario it refers to the area corresponding to the last bearish candle but before a sharp and substantial upside movement that forms a valid bullish break of structure now let's see what is the psychology Behind These zones in the market the theory behind considering these zones as potential reversal areas is based on the belief that they represent manipulation areas formed just before a significant market movement Traders view these zones as areas where a large number of
buy or sell orders have been executed therefore by using these zones in our trading strategy we can potentially take advantage of the high probability of price reversal and change in Direction when it reaches these areas now let's proceed to the next topic and discuss how to identify a valid order Block in terms of Candlestick patterns and see the various scenarios that we might encounter in identifying Candlestick based order blocks on the chart in a bullish scenario a Candlestick based order block refers to the last selling candle before the price starts pushing upward drastically this candle
typically breaks below or effectively sweeps the liquidity of the lowest point of the previous candle for example in the bullish diagram we identify this red candle as a valid order block it serves as the last bearish candle before the price initiates a drastic upward movement having taken out the lowest point of the previous bearish candle and effectively swept its liquidity similarly in a bearish scenario a Candlestick based order block refers to the last buying candle before the price starts pushing down side drastically this candle typically breaks above or effectively sweeps the liquidity of the highest
point of the previous candle now let's move into essential criteria and rules that we need to consider to identify valid order blocks in the market and understand how we can use them to our advantage it's crucial to note that to have a confirmed and valid order block firstly price must take out and sweep the liquidity above or below the previous candle to form a valid order block secondly price must leave inefficiency behind and generate imbalance near the order block area if there is no proper imbalance between the subsequent candles then the identified order block cannot
be considered valid rule number three it must be unmitigated order blocks are considered onetime use meaning we focus on the trading opportunity when price first enters an order block once an order block has been mitigated we do not consider it as an area of interest for future trading rule number four it emphasizes that a highquality order block must lead to a break of structure or a change of character in the market break of structure and change of character are essential signals that indicate whether the market will continue in its initial direction or will experience a
reversal to solidify our understanding of order blocks let's examine more examples consider a series of bullish candles as Illustrated as you can see the market momentum was bearish until the price created this weak bullish candle just before starting to push upward with these three large green candles this weak bullish candle reached its lowest point here and additionally it took out and effectively swept the liquidity below the previous candle as mentioned earlier without a proper imbalance in the subsequent candles that form after the order block our identified order block cannot be considered valid if we look
at this three candle sequence we see that the upper Wick of the first candle and the lower Wick of the third candle do not overlap the whole body of the middle candle here we have a gap between the candles representing the imbalance since the criteria for a valid order block are met here this candle represents a valid order block if we look a bit higher we see that once again the price has created an upward drastic movement this red candle represents the last bearish candle that had just been formed before the price started to push
drastically to the upside we can see that this bearish candle has taken out and effectively swept the liquidity below the previous bearish candle since the price has also created a proper gap between these three sequential candles meeting all the criteria for identifying a valid order block we can now consider this candle as a valid order block with the potential to reverse the price if it pulls back down and mitigates it as you can see this bearish candle here is the last bearish candle before the price formed another bullish movement however this candle does not represent
a valid order block because it did not take out the previous candle's low let's examine more examples consider another series of candles as Illustrated in the second diagram once again we see that the price has taken the low of the previous candle effectively sweeping liquidity below it with this bearish inverted Hammer candle thus we have a potential candidate for a valid order block however there is no noticeable imbalance among these three candles and the order block is mitigated by the upper Wick of the bullish candle consequently this order block cannot be considered valid as it
fails to meet most of the necessary criteria for validating an order block therefore it cannot be utilized as a demand Zone when faced with scenarios like this where the price is taken out the liquidity from the previous candle but the order block is mitigated or when the price fails to create in efficiency we designate the subsequent Candlestick as the valid order Block in this case we identify this bullish candle as the valid order block instead of the previous selling candle this decision is based on the fact that the price has generated a proper inefficiency or
imbalance immediately following the bullish candle if we look slightly higher we notice that the price has taken the low of the previous candle effectively sweeping liquidity below it with this bullish candle before the price starts to push significantly higher however there is no discernible imbalance and this order block is mitigated by the upper candle's Wick therefore this order block cannot be regarded as valid and consequently cannot be utilized as a demand area continuing once again we see that the price has pushed significantly to the upside this red candle represents the latest bearish candle that has
just formed before the price started to push dramatically higher it is evident that this bearish candle has surpassed and effectively swept the liquidity below the previous bullish candle as the price has also created a proper gap between these three sequential candles and there is no mitigation all the criteria for identifying a valid order block have been met consequently we can now regard this candle as a valid order block these concepts are applicable to bearish markets as well it's important to note that these principles can be applied across various time frames and any price action based
chart now let's proceed to the real chart and integrate all the concepts we've explored in this video we'll examine how to effectively identify valid order blocks in the market so here we have Euro doll 15minute time frame chart on the screen as you can see the Market's overall direction is in an uptrend upon analyzing the chart we notice that the price has established a bullish break of structure by breaking and closing Above This major high with the emergence of the break of of structure our focus should now shift to identifying order blocks associated with the
BOS this white candle at the extreme represents the last bearish candle that has recently formed before the price began a significant upward push it has successfully taken out and swept the liquidity below the previous candle however upon closer look if we highlight this candle it becomes apparent that this order block is mitigated by the upper tiny Wick therefore we cannot consider it a valid order block looking slightly higher we notice another bearish candle that represents the last one before the price began a significant upward push it's clear that this candle has taken out the low
of the previous candle upon highlighting it we see that it is mitigated by the upper Wick of the bullish candle as mentioned earlier if our identified order block is mitigated by the last candle of the three sequence candles we should consider the next Candlestick as the valid order block therefore this candle serves as our valid order block let's continue in the following sequence we see that the price has initiated another upward movement and this candle is the last bearish one before the upward push it has taken out the low of the previous candle however upon
highlighting it we see mitigation with the wick of the third candle mirroring a scenario we discussed earlier consequently we identify the next Candlestick as the order block yet again it is mitigated This Time by the upper candle wick therefore we proceed to the next Candlestick Traders the red hammer that follows is our valid order block nevertheless upon closer look we note that the price touched it and after a minor reaction pushed to the downside without respecting the order block the primary reason for such price action is that we should always wait for the price to
take out the inducement before executing a buy or sell position this topic has been covered in our earlier episodes I highly recommend that you go through our Channel and watch them for a more comprehensive understanding continuing we see that the price continued its downward momentum pulled into our valid order block experienced a reversal and subsequently pushed higher if we were analyzing a live chart this order block would present a great opportunity for us to execute a long position and enter the market in the continue we see that the price has formed a change of character
pattern by breaking and closing the structure after the emergence of the change of character it is crucial to wait for the price to take out the inducement before considering long or short trades and entering the market in this case this candle's low represents the most recent internal level that the price has formed in its upward path so once the market has taken out the inducement the next step is to wait for the price to to mitigate our identified valid order Block in this scenario this white candle represents the last bearish candle that formed just before
the price pushed drastically to the upside sweeping the liquidity below the previous candle's low additionally there is a noticeable imbalance above it hence this candle is our valid order block offering a high probability if the price mitigates it if the price Taps into it we should consider entering the market with a long position Traders we have thoroughly covered the major order blocks that frequently appear on real price charts enabling us to develop a solid understanding of how to identify them now in the following section we will explore the entry models that can be incorporated into
our trading plans using order blocks these entry models will serve as effective tools for executing trades based on the insights gained from order block analysis there are four primary types of entries that we can employ when executing trades using order blocks the selection of a specific entry type depends on various Market factors such as the Market's movement sessions volatility and other relevant factors by considering these factors we can choose the most suitable entry type for executing trades effectively the first entry method involves using the Wix to execute trades in this type of Entry after identifying
a valid order block we place our buyer sell order directly on the wick in the case of a sell position we will place our stop loss a spread size above the higher Wick of the order block this entry setup provides a wider stoploss margin which can directly impact the reward to risk ratio by reducing it however using this type of Entry increases the probability of your order being triggered since price May simply touch the wick and then push to your expected Direction the second entry type is referred to as the body entry in this approach
once a valid order block is identified the entry is placed based on the body of the candle for sell positions the stop- loss is set a spread size above the higher Wick of the order block this entry method typically offers a higher reward to risk ratio compared to the previous entry type because the stop loss is tighter this approach carries a slightly higher level of risk there is a possibility that price may only touch the wick of the order block and then move in the anticipated Direction without triggering your buy or sell order consequently there
is a chance of missing out on a potential profitable trade opportunity let's move to the next entry type the third type of Entry which I personally prefer and utilize more frequently in my trading plan involves placing the entry at the midpoint of the order block Zone once a valid order block is identified in the case of a bearish scenario the stoploss is positioned a spread size above the highest point of the order block this entry type offers a reward to risk ratio that is at least twice as large as the regular entry types mentioned this
is due to the refined entry point and the smaller size of the stop loss this is precisely why this entry type holds a special place as my favorite approach by employing this approach we can potentially enhance the profitability of our trades while effectively managing risk the fourth entry type involves placing the entry based on the body of the candle once a valid order block is identified in cell positions the stop loss is set to touch the higher Wick of the order block this entry type is undoubtedly riskier because the stop loss is positioned within the
order block Zone if the price intends to fully reverse the order block it may trigger the stop loss it's important to be aware of the increased risk associated with this entry type and carefully consider its suitability within your trading strategy that's it Traders thank you for watching this video I hope you found it informative and useful don't forget to hit the Subscribe button and turn on notifications to stay updated on our latest videos we value your feedback and suggestions so please leave your comments below and let us know what topics you'd like us to cover
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