Order Blocks Simplified — Step-by-Step Guide & Transcript

[00:12] first going to cover order blocks at the Smart money reversal before talking sell side of the curve I'll also be talking about the main threshold of price is respecting an order Block versus invalidating an order block and

[00:27] then finally I'll be taking a look at stop losses for order blocks so let's hop into the PDF and get started so here we are on the order block slide and if you notice we reach into an important level we create a high or buy side

[00:39] liquidity we sweep that high and then displace and close below the opening price of the single or series of up Clos candles into this important level this candle here displaces and closes below the opening price here validating it as

[00:54] an order block then when price retraces back into the order block it is used as resistance to continue low lower similarly down here price reaches towards an important level creates sell-side liquidity it then sweeps that

[01:06] sells side liquidity before displacing and closing over the opening price of the single or series of down Clos candles once this occurs price then uses this level as support to continue higher now order blocks don't necessarily need

[01:19] a sweep before this closure below creating a high low higher high lower low but I do prefer that and so I always wait for a sweep now the most important part on this slide is waiting for an important level if we get this pattern

[01:32] at a random spot in a chart it doesn't mean anything that's not an order block it needs to be off a higher time frame PD array or important level so here we are with our first example if you notice we have buy side liquidity resting here

[01:45] we have buy side liquidity resting here or buy buy stops right here now if we get a close and displacement below the series of up Clos candles here this opening price we now have an order block

[02:00] let's see if that forms so right here we get displacement and closure below that so looking to enter on a retest of the order block my stop on this high and looking for 2 R let's see how this works out so here we

[02:14] let's see how this works out so here we get tagged why did we get stopped out now if you remember back to the slides I'm looking

[02:26] for the series of up closed candles into what an important level do we have an important level here well if we're on the 5 minute let's zoom out to the hour here we have our buy side liquidity resting right here so zooming back into

[02:41] the 5 minute now you can see in the absence of a higher time frame level equal highs and this is a retracement to hourly chart and see how we could frame this in the other direction so back out

[02:55] here on the hourly chart knowing we have buy side liquidity resting above us what value Gap so with an hourly fair value Gap dropping down to the 5 minute chart now now we are waiting for price to reach into the fair value

[03:09] Gap here we get a reach into the fair value Gap so now what do we have checked off we have an important level so now I'm waiting for a sweep here we get a sweep now if we're going to validate this down close candle

[03:22] into an important level and sweeping liquidity where do we need to close I want to see a closure over the opening price of this down closed

[03:36] once again looking to take an entry on the retest of this opening price my stop on the low and then looking for buy side liquidity or 2 R let's see how this liquidity or 2 R let's see how this works

[03:52] can see this is not a valid order block because it is lacking a higher time frame level while this order block reaches into a higher time frame level or an hourly fair value Gap and is going with the trend now let's hop back into

[04:04] threshold of an order block as well as the order blocks on the buy side and sell side of the curve so what is the mean threshold of an order block well in the previous section so taking a look at the order block the single or serious

[04:18] candles I'm going to take my 0.5 Fib from the body low to body high and Mark out 50% of that order block that is our mean threshold ideally if price is going to see any closes below the mean threshold or 50% of this order block so

[04:34] you can see here once we validate this order block the 50% level of the order block is respected to move higher now lots of times I will focus on using the have a larger series of candles in which the opening price does not make sense

[04:48] for an entry let's hop into an example of that so here we are on oil 5 minute into an hourly fair value Gap here although we do have a little sweep here I prefer a nice ni swing low to be swept let's see if we can close over this down

[05:03] let's see if we can close over this down close below and then now what are we getting another lower time frame

[05:20] sweep and now what I would be looking for is where is the series of down Clos candles right here I want to see price close over over these candles

[05:38] candles this is our order block here or the series of down Clos candles before the change in the state of delivery my eyes are drawn to these failure swings entry off of this order block I'd need

[05:52] my stop on this low or that is how I do it and then targeting the failure swings at the high however that gives a risk to reward ratio ratio of 1.3 so this is when I would go from body high to body low and Mark out 50% of that order block

[06:08] be an entry point and you can see how my rist reward goes from 1.3 to 2.6 almost rist reward goes from 1.3 to 2.6 almost let's see how this plays

[06:23] there you can see from this example it's not always going to be super clean and picture perfect but when I have a larger order block or larger series of down Clos candles where it doesn't make sense to enter off the opening price that is

[06:36] threshold and zooming out quickly to look at the hourly chart you can see how the bodies respect the fair value Gap here and the Wicks do the damage so now taking a look at order blocks on the buy side or sell side of the curve in this

[06:49] case we'll be focusing on the buy side of the curve for the PDF now when we switch from bearish to bullish and we have our smart money reversal I will still be looking for entries after the smart money reversal and the way I do

[07:01] buy side of the curve now what am I looking for I'm looking for a down Clos candle into an important level now those important levels are a previous order block a fair value Gap or a sweep let's go over those so you can see here this

[07:15] would be our smart money reversal we have an order block we get a down close candle into that order block we close over this down close candle validating it as an order block and then price continues higher the next one I look for

[07:29] the down Clos candle into the fair value Gap when the opening price of that or the series of those candles gets closed over validating it as an order block I'll look for an entry higher from there and the last one I look for is similar

[07:41] to the smart money reversal but in a continuation of a trend we have a swing low which is swept and then the down Clos candle that swept this low gets closed over validating it is an order block to continue higher let's hop into

[07:55] these so in this next example you can see that price price has mostly Consolidated through Asia and London so let's see what happens as we near New let's see what happens as we near New York

[08:09] lows over here or these sell stops resting below the Asia lows now if these down Clos candles are going to become an order block what do we have to do we have to close over the series of down Clos candles right here so let's see if

[08:23] that occurs so we do get that close now if I'm looking for order block entry I would look to enter here my stop on the low however with this current range if I was just targeting these highs here

[08:36] that's 1.4 risk to reward now there's a few ways I can go about this I can look for a fair value Gap entry which should give me just about 2 R which I'd be looking to do let's see if price confirms the smart money reversal and

[08:49] then we can find another order block so here price reaches into an important level or a fair value Gap so if it's going to close over the bodies of these series of up closed candles this is now an order

[09:03] block we cannot close over those bodies yet and what do we get we get a sweep of a low now if we're looking for the lowest body down close candle it would be this candle here I'm waiting for price to close over that

[09:18] candle we do not get a close yet and there we get a close so now if I'm looking to take an entry I can enter on the opening price of this down close candle My Stop on that low and then targeting the highs for just about 2 R

[09:33] so you can see it's about the same as that fair value Gap this price action and use what we learned in the last section we can Mark

[09:47] block right here you can see that the candles respect this mean threshold now what I can do is look to take an entry on this mean threshold with my stop in the same spot and you can see how the risk to reward significantly increases

[10:00] however with this technique I also risk the chance of not getting filled on this trade now you're probably wondering can we do the same thing with this order block down here at the Smart money reversal and of course we can so marking

[10:12] out from the high to the low of the bodies and dragging it over let's see how this risk reward would be entering at the main threshold my stop on the low and targeting the same highs it would be just about 2.6 when compared to the fair

[10:27] value Gap entry at 1 .95 let's go over one more example of using order blocks as a continuation of trend we have previous month's high sitting here you can see we create equal highs and then we have a series of up Clos candles into

[10:40] the equal highs which then get displaced and closed below validating it as an order block price then retraces back up into the order block as well as into this small inefficiency here or fair value Gap now we have a series of up

[10:54] closed candles into an order block and fair value gap or important levels so now if price is going to displace and close below these up closed candles we now have another order block here we displace and get a close

[11:11] below now let's see if we reach back up into that important level here we reach up into this important level so now I can look for important level so now I can look for this to displace and close

[11:25] below we do validate this as an order block so now I can look at this as another point of interest for a continuation of now what do we have the up close candles into an important level and let's see if

[11:41] we get a move lower here and we do so you can see how these into an important level and then displace and close below them now you're wondering why didn't I choose this candle as an order block well it never

[11:56] reached up into an important level for me I wanted price to reach back into this order block which it did here so although we close below the opening price here it doesn't validate it as an order block for me because it's missing

[12:08] I'm going to talk about prior to our final example are stop losses with order blocks generally I'm looking to place my stop loss on a swing high or low or the other end of the order block now obviously a stop loss on the other end

[12:22] of the order block will provide higher risk to reward than the swing low but the stock stop loss even when the trade is not invalidated let's hop into our final example so let's take a look at this example and work through it if we

[12:36] are looking for a continuation of trend what is our draw on liquidity well it would be this high up here or buy side liquidity now if I'm looking for a continuation Trend I'm looking for either a return to an order block a fair

[12:49] value gap or a sweep of a low well if you notice over here we have these down Clos candles that swept all these lows down here so this also creates an order block and it has displacement following it with a fair value Gap with that idea

[13:02] in mind to run lower to go higher what else do we see well we have lows resting here or sell stops so let's see what happens after open now I don't need to happens after open now I don't need to catch this first entry and I'll show you

[13:20] never violate this low over here but what do you notice we have down Clos candles into order block fair value Gap and sweeping lows before displacement and a close over these down Clos candles so what is this that is an order

[13:35] block so now I can look to take an entry here I stop on the low and we created equal highs up here and that is only 1.5 R now although that is great what can we do well we could Mark out the mean threshold of this order block and if you

[13:50] little inversion here but if we're going to take an entry here that is 2.5r so to take an entry here that is 2.5r so let's see how that works out and there you go we get a move higher and hit our take profit so you can see

[14:04] even if I don't catch this first initial buy this order block is a secondary entry to move higher now this isn't the best example but if I was to have my stop on the order block low here and this moved just one point lower it would

[14:17] have stopped me out even if the trade was still valid and didn't violate this low that's why I personally prefer to have my stop on the swing low and adjust invalidation point right rather than adjust my invalidation to get closer to

[14:31] my entry I hope you found this video helpful if you did please consider liking and subscribing and let me know in the comments below which video You' prefer between mitigation breaker and propulsion blocks as those are the

[14:43] this series I hope you guys had a great holiday and I'll see you guys in the new