Order Block Strategy — Step-by-Step Guide & Transcript

[00:02] explain one of the most powerful smart money trading strategies, the order money trading strategies, the order block in order block setup by combining market structure with order blocks. This strategy helps you identify simple yet

[00:15] you're interested in learning advanced trading concepts, strategies, entry techniques, and how to stay disciplined with your trading plan, make sure to hit the like button to show your support, and don't forget to subscribe if you're

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[00:43] Before we start explaining the trading plan, we need to go over a few key concepts about order blocks and market structure as we'll be using them later in the strategy. Let's begin with the basics. What is an

[00:55] order block? Order blocks are essentially optimized supply and demand areas. From basic price action, we know that the market always moves in impulsive and corrective waves driven by the behavior

[01:09] of market participants. We identify the starting point of an impulse as a demand zone. This is because in that area, traders previously entered long positions with a purpose. If the price returns to the demand zone,

[01:23] there's a higher probability they will buy again. Simply put, demand zones highlight areas where we expect buyers to step back into the market. Similarly, the start of a downward move is marked as a supply zone where traders

[01:37] have previously taken short positions. When price revisits this zone, it's more likely that selling will occur again. In other words, supply zones highlight areas where we expect sellers to re-enter the market.

[01:50] Now order blocks are a type of supply and demand zone but they form when a large number of buyers or sellers enter the market creating a price imbalance. The imbalance between buyers and sellers can be seen through fair value gaps.

[02:04] These gaps happen when price moves quickly leaving orders unfilled and the market may come back to these areas later to regain the balance. We mark the candle before the gap as our order block zone because we believe

[02:17] decisions are made during that candle. We expect that if the price returns to this order block, it could react strongly as buyers or sellers step back in. So basically order blocks are supply and demand zones. But the difference is

[02:32] that we focus on areas where larger institutional orders are placed. Now how do we mark the order blocks? We take the entire candle before the fair value gap and mark it as the order block.

[02:45] The color of the candle doesn't matter. For example, in a bullish gap, it makes no difference whether the candle is green, red, or even a dogee without a strong body. All of them can be considered valid demand order blocks.

[03:00] Here's an important point. Sometimes a wick grabs liquidity before the imbalance happens. In that case, we also include the wick as part of the order block zone. This marks the real beginning of the imbalance and our stop

[03:13] loss should always be placed below this wick for protection. Order blocks can be small or very large. When the zone is small, we should use a wider stop-loss below it because even though order blocks are strong supply

[03:27] and demand areas, the price doesn't always reverse exactly from this box. We need to give it some room to breathe. On the other hand, when the order block is large, you can place your entry around the middle of the zone for a

[03:40] better price or switch to lower time frames to look for confirmation and rejection signals. Now, what makes an order block high quality and worth trading? The key is alignment with market

[03:52] structure conditions. In an uptrend, price forms higher highs and higher lows. Each time the price breaks structure to the upside, it signals continuation of the trend. The bullish order blocks formed along the

[04:05] way have a higher chance of rejecting the price to the upside if the price pulls back to them. This uptrend continues until the market breaks below a protected low. That's called a change of character and it signals a possible

[04:18] reversal. It shows sellers have gained control and pushed price lower. The bearish order block that caused this move becomes a great opportunity to go short. From there, if the trend starts making lower lows and lower highs, the

[04:32] bearish order blocks that form along the way also become strong trading setups. further than this, but this provides a simple explanation of how order blocks

[04:44] form and how to use them. Now that we have explained order blocks and market structure, it's time to move on to the trading strategy. But before we continue, if you want to get a funded account quickly, check out Funded Next's

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[05:25] and we've simplified it into five clear steps. Analyze the market structure on the higher time frame to find the direction. Mark the order blocks, wait for a pullback, then wait for a change of character confirmation on the lower

[05:39] time frame. Finally, enter at the lower time frame order blocks. As I mentioned earlier, this setup uses two time frames. the higher time frame which is our main chart for day trading analysis and the lower time frame which

[05:55] we use for confirmation entry and trade management. It doesn't matter which specific time frames you choose but the entry time frame should always be at least two times lower than your higher time frame.

[06:09] For example, we normally use this combination of time frames. The next important point is that you can use this trading strategy on any asset. It does not matter whether you are trading forex, crypto or stocks because

[06:23] price action concepts stay relevant across all markets. However, make sure to back test enough before risking real money to see how the strategy performs. Now, let's go back to analyzing the market structure. The first step is to

[06:37] find the market direction. Trading with the main trend usually gives us a higher chance of winning. To see the market direction, we look for break of structure, changes of character, and reversal patterns on the chart. If you

[06:50] cannot clearly see the market direction on a time frame, it is better to skip that pair. Trading when the direction is unclear increases the risk. So, it is safer to focus on pairs with a clear trend for better decisions and risk

[07:02] management. Next, we identify fair value gaps and mark the order blocks, which are our main trading zones. Now we can simply place a sell limit at the order block and put our stop loss

[07:15] above it. However, for more conservative trading, we can zoom into lower time frames when the price reaches this area to see how it reacts and confirm the trade. We want to see a rejection from the order block to make sure it is being

[07:29] respected. Even though this is a highquality trading setup, price does not always reverse exactly from the box and the market can easily ignore the order block. The next step is to wait for a pullback to the order block zone

[07:43] and then zoom into a lower time frame. Remember, do not jump into the market before the price reaches the order block zone because the market often traps early buyers. Now, in the final step of this trading

[07:57] plan, we look for confirmations and execute the trade on the lower time frame. After waiting for the price to enter our trading zone, we need confirmation that the short-term uptrend is ending and the price is ready to move

[08:11] down. To spot this reversal, we look for a change of character. This happens when the price breaks below a swing low. It confirms that the short-term uptrend is over and the price may continue pushing lower in line with the bearish higher

[08:25] time frame direction. Once the reversal is confirmed, we wait for the price to form bearish order blocks and then take the trade. This is why the strategy is called order block within order block. The lower time frame order block does

[08:39] not always have to be inside the higher time frame order block zone. After identifying the lower time frame order block, we set a sell limit at the start of the zone and place our stop above it. For the first target, we move our trade

[08:53] to break even by closing half of the position when the price reaches a 1 to2 risk-to-reward target. The next target will be the first important zone ahead will be the first important zone ahead of the price on the higher time frame.

[09:06] Here is a quick recap for the bullish scenario. The same rules apply, but in reverse. We wait for the price to reach our higher time frame order block. Then we look for a change of character in the lower time frame which happens when the

[09:21] price breaks below a swing low. This confirms that the short-term downtrend is over and buyers are taking control. Once confirmed, we look for bullish order blocks on the lower time frame and place our buy limit at the start of the

[09:34] zone with the stop loss below it. Targets are managed in the same way as Now, before we look at real chart examples, let's review some common examples, let's review some common scenarios and how to handle them.

[09:48] Scenario one, a very small order block on the lower time frame. In this case, use a slightly larger stop-loss zone to protect your trade from normal market fluctuations. A stop that is too tight can get taken out too easily.

[10:04] Scenario two, a very large order block on the lower time frame. If we set our could be too wide and reduce our risk-to-reward ratio. Instead, we can

[10:17] order block as our stop or place our entry closer to the middle of the zone. Both options help improve risk-to-reward. Scenario three, multiple order block formations.

[10:31] We can trade all of the order blocks as long as they give us a reasonable risk-to-reward ratio. But remember to always trade with reduced risk. Do not single trade and never have more than three trades open at the same time.

[10:46] The goal is not to win every single trade. Losing trades and missed trades are part of trading and that's normal. Our focus should always be on ending the day with a positive overall result. Now, let's look at some real chart examples

[10:59] to see exactly how to apply this trading plan. Here we have the Euro Dollar on the 1-hour chart. The recent price action shows that the market was in a long-term downtrend until it shifted direction by

[11:12] breaking above this protected low. This change of character tells us that demand is now in control and signals a possible reversal with the start of a new uptrend. Since the higher time frame direction is bullish, we are only

[11:25] interested in buying opportunities. Next, we simply identify the fair value gaps in order blocks. In this example, we can see two fair value gaps. So, we mark the candles that created these gaps as our order block zones. These zones

[11:40] are our key trading areas. If the price pulls back into these zones, we will then zoom into the lower time frames to look for confirmation signals and enter look for confirmation signals and enter the trade. So let's see what happens.

[11:53] The price has tapped into the first order block. So we zoom into the 5-minut chart to look for an entry. On the 5-minut chart, we want to see signs of reversal to confirm that this order block is being respected before

[12:06] opening a long position. For confirmation, we need to see a change of breaks above the swing highs that caused the breakout. Let's play the price the breakout. Let's play the price forward. Here

[12:20] we can see that the price broke below the order block without showing a clear change of character. Although there was a slight reaction to this zone, we did not get the confirmation we wanted. So we have no trade.

[12:33] Now let's go back to the 1 hour chart. On this chart, we still have another unmitigated order block zone below. If the price reaches this zone, we will again zoom into the lower time frame to look for an entry signal. Let's see how

[12:47] the price moves next. Now the price has tapped into this order block. So we zoom into the 5-minut chart once again. On the 5-minut chart, the market has already shown a change of character,

[12:59] which is the reversal signal we were waiting for. This tells us the can look for long trades with confidence. The next step is to wait for the price to form order blocks and then open long positions.

[13:13] Here the market creates an order block. So we open a long trade. As the price pushes higher, another order block forms without canceling the first trade. We also open a second long position at the

[13:26] new order block. This approach is important because the pullback to the guaranteed. Sometimes the market only touches the second order block before moving higher. In the worst case scenario, the price

[13:40] may drop and hit both stop- losses, which is why we always trade with reduced risk. Now, let's see what happens.

[13:52] second trade, but triggers the first one. Then, another order block appears. Again, without closing the first trade, we place a long position at this new order block. We keep repeating this process until the

[14:07] market reaches our target, which in this case is the previous high on the higher time frame. This strategy has proven to be profitable, but you must back test it before trading with real money. The

[14:21] reality of trading is that even with a solid plan, you will still face losing trades. That does not mean your analysis was wrong. The key is to write down your rules, follow them consistently, and stick to your riskmanagement plan. If

[14:36] you do that, you will be fine in the long run. So guys, that's it for this video. I hope it provided value to you. If it did, please go ahead and smash the like button to show your support. And if you're new here, consider subscribing to

[14:50] our channel. See you in the next episode.