A strategy that is not as common with retail traders is order block trading.
You can use many order block strategies to attempt to target significant areas to enter the market and manage your trades.
This post breaks down order block trading and how to use it in your trading.
NOTE: You can get your free order block trading PDF guide below.
Free PDF Guide: Get Your Order Block Trading Strategies PDF Guide
What is Order Block Trading?
Order block trading is analyzing where large blocks of orders form in the market and using this information to buy or sell.
Big trading institutions and banks usually create these blocks.
Knowing where these big players are putting their order blocks can help you identify the best areas to enter new trades or exit existing ones.
While there is no one central exchange for foreign exchange markets, the big banks and institutions significantly affect where prices move.
Where these whales of the markets are placing their order blocks can have a significant effect on what prices do.
If you know and understand where these order blocks are building up, you can use it to your advantage when making trades.
The key to order block trading is recognizing these critical levels in the market. When prices move into an order block area, we can often see large movements in price and a spike in liquidity. This can lead to very profitable trades.
Order Block Theory
Because central banks and large institutions play a huge role in price movement, it is essential to understand where they are putting their order blocks.
There are several reasons these whales are placing the orders the way they are, but it is often to enter or exit huge positions without spooking the market.
If a large bank is trying to enter the market at the best possible price, they will use order blocks instead of one ginormous order.
This way price will not explode, and they will get in at the best possible price.
An example is ‘Bank XYZ’ has a huge trade they need to fill.
If they make this trade in one colossal order, they will risk there will not be enough liquidity to enter it all, and also risk price spiking as they start to enter and don’t get the best price.
Instead, they will enter multiple positions known as order blocks. They will place these order blocks at strategic areas where they are sure to be filled and will get the best possible price.
Another way to think about this is how a large institution would break their order up. If they are trying to enter a particular market with a $500 million trade, but only $100 million are being sold, they face two things.
The first is that they will be entered into that first $100 million. However, there will still be $400 million left not entered. This could see the price spike, and as the banks try to buy the remaining $400 million, they will be entering at worse and worse price levels.
Order Block Smart Money Concepts
Smart money concepts are built around what the big players are doing in the market.
One way traders will often use smart money concepts is by looking for when the big players are placing their order blocks and stop hunting.
The easiest way to identify these supply and demand smart money stop-outs is to look at your price action and market structure.
In the example below, we go through how these order blocks build up and how a stop hunt occurs around the market structure.
How to Trade With Order Blocks
Order block and smart money trading can be used hand in hand with your other technical analysis and price action trading.
You can also use other helpful indicators that can help you refine trade entries and where to place your take profit and stop loss.
The example below shows how a stop hunt occurs, and you can use this information to make high-probability reversal trades.
The first part of this stop hunt is the clear resistance level that is in place. Each time price has tested this resistance, the big players have stepped in and pushed the price back lower.
The key to this setup is that a large number of stop losses would sit above this resistance. Many traders who have sold when the price has hit the resistance would have their stops just above.
The big players know this.
When the price moves into the resistance again, it breaks through. This would activate many of these stop-loss orders and close many trades.
This is a false move, and stop out. As soon as the price has popped above this level and hit a lot of stops, it quickly reverses and moves back lower.
Order Block Indicator
While one of the best ways to identify order block levels is using your price action and technical analysis, some indicators can help you do it.
One of these order block indicators is built for MT4.
This MT4 order block indicator will help you quickly identify the critical areas of supply and demand and the best spots to enter or manage your trades.
This is a premium indicator, but it has many handy benefits.
You can use it simultaneously on four time frames and in any markets you like to trade.
This indicator is helpful if you like to scalp or swing trade the markets or you like to trade reversals.
It also comes with a range of handy alerts you can setup.
Get your MT4 order block indicator here.
Order block and smart money trading take some time to practice and master.
After you start to work out where these big order blocks are being placed and when to look for stop hunting, you can use it to your advantage.
This vital information can help you get on the right side of the market, and instead of having your stops hit, you can trade in the direction of the smart money.