Order Blocks
Last updated
Last updated
supply-demandOrderblocks are a key concept in price action trading, seen as a way of identifying supply and demand. A bearish order block represents supply, and a bullish order block represents demand. Orderblocks, as the name suggests, are candles that indicate a high volume of orders taking place. These powerful orders alter the market structure and leave behind traces, which retail traders can use to their advantage.
Orderblocks are the last upward or downward candle before a significant market shift. While it may seem initially complex, it is a simple concept that can be easily understood through practice. Certain criteria must be met for an order block to be considered valid, such as:
It must precede a break in the market structure
It must have created imbalances or Fair Value Gaps
There are two types of order blocks:
Bullish Orderblock: the last downward candle preceding a market structure break
Bearish Orderblock: the last upward candle preceding a market structure break
You should first learn to identify the chart’s price range or price block to draw an order block.
In the next step, mark the highest point and the lowest point of the price range.
Draw a horizontal zone meeting the high and low of the order block zone. This will act as an order block zone
As we’ve learned, order block areas are under the attention of big institutions and banks. Institutional traders choose these zones to put their orders. So we should note these price areas, and when the price returns to these zones in the future, we can trade them.
Below I have explained a simple criterion to open buy and sell orders in case of order blocks.
When a bullish order block zone forms on the chart, place a buy order a few points above the zone. Place stop loss a few points below the zone.
When a bearish order block zone forms on the chart, open a sell order a few points below the zone and place stop loss above the zone.
In the order block pattern, a sideways wave will first form, then a big bullish or bearish impulsive wave will form.
The supply and demand pattern consists of three waves, impulsive, sideways, and again impulsive wave. These three waves give rise to the formation of a supply and demand zone.
The order block zone shows the presence of a chunk of remaining orders on the chart because most orders got filled when impulse waveforms.
Supply and demand zone predict the presence of all the institutional orders within the limits of the base zone. Price will return to the zone to fill the unfilled institutional orders.
Order block is based on the natural phenomenon of balance and imbalance.
Supply and demand pattern is also price action pattern based on natural phenomena.
To increase the probability of winning, we can also use the candlestick patterns with order block zones.
While in supply and demand trading, a trader focuses on picking the pinpoint entry. That’s why the confluence of candlestick patterns is not necessary. All you need to do is find the excellent supply-demand zones on the chart.
Order block zones offer moderate risk-reward ratio trades.
While the supply-demand zones offer ultra-high-risk reward trades.
Order block strategy is suitable of for higher timeframes.
Supply and demand trading strategy is suitable for intraday or lower timeframes.
In the Order block trading strategy, we will first check a valid order block zone on the chart. Then we will open a buy/sell trade when the price returns to the zone after confirmation of a trend reversal candlestick pattern like a pin bar or engulfing candlesticks.
We will first find the supply or demand zone in the supply-demand trading strategy. Then we will open buy trade at the high of-demand zone with a stop loss below the zone’s low. On the other hand, we will open sell trade at the low of the supply zone with stop loss above the zone. No confirmation is required in supply-demand trading for entry and stop loss.
Order block pattern shows the filling of the chunk of market orders at the break of the ranging structure. After orders filling, the price will increase or decrease in the form of a big in a very short time interval.
The supply and demand pattern is based on the RBR, , , and concepts.
