Order Block Explained: Forget Support and Resistance

[00:02] show you why you will never go back to support and resistance levels again. Because you don't know where to actually enter a position, and more importantly, where not to enter, you will either

[00:15] constantly miss successful entries or enter where you shouldn't . In this video, we'll tell you everything you need to know to successfully work with order blocks. This 15-minute video will completely change your

[00:28] First of all, I would like to talk about why support and resistance levels, and especially trend lines, are bad entry points for a position. To understand why you can't consider levels and

[00:42] to answer one simple question: how are they formed? Let's remember technical analysis. The more times one level is touched, the stronger the support or resistance line will be. The same thing is with the trend line. The more the

[00:55] price touches the trend line, the stronger it becomes. What does this mean for technical analysis traders? That they will enter into a position at those levels where there is a lot of liquidity. If you

[01:07] still don't know what liquidity is and how to work with it, be sure to watch our previous video, where we covered the most important smartman concepts, including liquidity. Since traders will enter at

[01:19] levels where there is a lot of liquidity, whether it is a double or multiple bottom, or a double or multiple top, the price will constantly knock them out at the stop-loss, thereby collecting liquidity from them. And the trend line is

[01:33] no better. As soon as you see a trend line that has already been touched several times, you think that it acts as a strong level and will definitely hold the price. After which you enter a position and the same thing happens.

[01:46] the main, but far from the only, drawback of support and resistance levels, as well as trend lines. You often mark a support/ resistance level with a simple line, but how often have you had a situation where the price

[02:01] missed your level by just a little , and you missed out on a profitable position, and when it came back again, it knocked you out at 100 orders. Agree, such situations happen extremely often. But that's not all.

[02:13] Based on the levels and trend lines where you will place your stop loss beyond the previous high or low, you will be guided by at round numbers, or you might look at a moving average, or

[02:26] something else. The point is that in technical analysis there is no certainty or stop loss. Your decision will always be extremely subjective and unlikely to have much accuracy behind it. Therefore, your stop loss will be large, which means

[02:40] you will not be able to get a good risk-reward ratio. But what does order blocking have to do with it? The order block is free from these shortcomings and serves as a much more accurate and reliable entry point. You probably want to ask how the

[02:52] liquidity issue is resolved? Everything is extremely simple. And such a situation, when a liquidity is one of the reasons for its invalidity and the cancellation of entry from it. We will talk about all the reasons a little later. How is the issue of unopened

[03:06] positions resolved? Because an order block is not just a line, it is a zone. The likelihood that you will miss a position using order block is much lower. When it comes to stop loss, you basically only have two options. Either

[03:20] set the stop at the order block level, or set it slightly higher in case of price slippage. I recommend using the second method. It will save you from a lot of lost positions. Believe me. As you can see, using

[03:32] order block, you don't have to guess where to place your stop loss. You be. These are just the basic rules, but far from the only ones, that you need to adhere to in order to successfully work with order blocks. I'll post a list of all the rules

[03:46] link to which I left in the description. free video lesson on Smartna every day and an educational article about trading in general, then you should definitely subscribe. Waiting for you. So,

[04:00] , but now it's time to talk about how to find it in the first place. It's worth starting with the fact that there are three main types of order block. And although they have the same logic behind them, which we will talk about a little later, I would like to

[04:14] talk about each one separately. The first type is a regular order block or the last bearish candle before the rise, or the last bullish candle before the fall. In other words, we mark this last candle before a strong

[04:27] move and then use it as our zone of interest. That is, we expect the price to return to this area, after which it will react. It is important to note that accordance with other factors and confirmations. We don't rely solely

[04:42] on him. Let's look at a couple of examples of how to find an order block on a chart. In this case, we see that the snare has wrapped at this point. Let's take a closer look. We see that before the fall there was a clear last

[04:54] candle custom. Let's celebrate it. In this case, this will be our order block, that enter the position along with other confirmations, of course. Here's how to work with the order block in this case. You find an order block,

[05:08] set an entry position at the lower boundary of the order block, and place a stop-loss just above the upper boundary. With the Order Block, everything is exactly the same with the ascending structure . We find the point after which there was a strong movement. Let's take a closer look

[05:21] . We find the last bearish candle before the growth. This will be our order block. And we expect a reaction to it in the future. The second type of order block is an absorbed order block. At first glance, you might say that this is the same

[05:33] order block from the first example, but no. Please note that in this case we are marking the last bearish candle before the fall , not the bullish one. And before the growth, we mark the last bullish candle, not the bearish one. I call this order block an

[05:48] absorbed order block. The logic of its formation is absolutely the same as that of a regular order block. The only difference is in the color of the candles. In fact, it doesn't matter at all what kind of light the candle had. It is much more important to understand the logic of its formation,

[06:01] when we use an absorbed order block instead of a regular order block, look at this situation. What would you mark as an order block if you were concept? You would mark this bullish candle, but look at how

[06:15] big it is. You would have ended up with a huge order block. And, accordingly, a terrible risk-to-reward ratio. In this case, it was the last bearish candle before the fall that should have been marked, since it was completely engulfed by the

[06:27] next one. And it was precisely after it that there was a strong drop, which makes it a valid order block. As you can see, the color of the candle is not so important. What is much more important is that there was a strong movement after this candle . And the last type of order block

[06:41] is a breaker block. This formation is the closest to technical analysis and actually represents the same retest that we all know. So how does it work? It's worth starting with the fact that a breaker block is a regular or

[06:55] absorbed order block that was broken by a sharp price movement, that is, an imbalance, without a reaction to it. From the moment an order block has been flashed and has not received any response, we consider it a breaker block. Let's look at the situation

[07:09] on a graph. Here we see the formation of an order block. which was pierced by a strong price movement, that is, an imbalance. There was also no reaction to this order block . This means that it becomes a breaker block. And in this

[07:22] case we will look for an entry into the position from it. You might be wondering: if there is also an order block above the imbalance, shouldn't we wait for the imbalance to be completely covered and for a reaction to it? The point is that in such situations,

[07:36] with a sharp price movement, we do not always see a return to the order block, Much more often we see a partial overlap of the imbalance and a reaction specifically to the to enter a position, just like a regular order block. We set the entry

[07:51] at its lower part, and place the stop loss slightly above the upper border. So, now you know the three types of order blocks that are used in trading. Let's repeat. Regular order block. The last bullish candle before the fall or the last

[08:05] bearish candle before the rise? Absorbed order block. The last bearish candle before the fall or the last bullish candle before the rise? Breakerblock. A regular or absorbed order block that was penetrated by a strong price movement without a

[08:18] reaction to it. Friends, I also want to announce a competition for your comment. I'll leave a question in the pinned comment, and from among those who answer it, I'll randomly select two winners who will

[08:31] receive a free place on our training. They will receive two blocks of our training absolutely free of charge. We'll be hosting the giveaway live on our thoughtful comments and you'll be able to receive our training absolutely

[08:45] free. So, we have already discussed how to search for an order block and what types of about the most important thing: why order blocks work. To understand this, we need to delve into the logic of order block formation. Let's not forget

[08:59] that in the SmartMoney concept, all major market movements are driven by the actions of a major player. The order block is also formed under its influence. So how does this happen? For a major player to open a position, he needs a lot of

[09:11] liquidity. But where to get it? The answer is simple from retail traders. When a major player wants to open a position, say, to sell, he first opens a long position, say, for $25 million . On the chart, this position

[09:25] will look like a large bullish candle. Then, many traders join this large movement , believing that the growth will continue. In this way, liquidity accumulates. Next, the major player opens his current position, a

[09:39] short one, which is much larger than the previous one. Let's say it's equal to $100 million . In this way, it moves the price down. When the price reaches the desired level for a major player, he will begin to fix his short position. This

[09:52] to fix his short position. This price rollback will occur. And here the most interesting part begins. Let's say a big player made $10 million on his short position, but his

[10:06] long position is still open, meaning it still has a loss of, say, $2.5 million. And, of course, a major player strives to cover this loss. To do this, a major player needs to return the price to the area

[10:19] in which the long position was opened, that is, the zone of our order block. When the price reaches the boundaries of this zone, the loss of a large player will be zero. It is at this point that he will begin to close his long position, after which the

[10:32] buying pressure will decrease and the bear will take over. This is why the order block is valid and this is why we open our positions based on graph. In this case we see an

[10:44] ascending structure. We also see that after this point there was strong growth. Let's take a closer look at it . Here we see the following. a fairly clear candle that has accumulated liquidity for a

[10:56] major player to open an opposite position, after which a strong movement occurs. At this level, it is clear that a major player has locked in his position and a gradual pullback is taking place. We mark the zone of our order block, as we are waiting for

[11:10] a reaction to it. This is where we want to enter a position, since it is in this area that the losses of a large player will be covered. What happens next? The price returns to the zone of our order block, and it is from here that

[11:23] the reaction and continuation of the upward movement occurs. After all, a major player position. This is precisely why order blocking works: there is clear logic and understandable manipulation behind it. These are not just lines that line up as they

[11:37] do in technical analysis. Now it's time to talk about the most important thing: when we use order blocking and when we don't. When working with order blocks. But you should not enter a position in all cases.

[11:51] being everywhere is often more important than taking action. So when we don’t want to enter a position from an order block and will skip it. If you find an order block, but later notice that both the primary and secondary structures are downward, and

[12:05] you marked the order block from which you want to play long, then you should skip this entry and wait for the structure to break and only then look for an entry. Trading against structure is perhaps the most important reason. Cancel

[12:17] entry from your order block. Here is an example on the graph. You see a clear order block, a strong reaction from it. Above you see the liquidity that you expect to be withdrawn after the reaction to your order block. But what happens next? The price

[12:31] will definitely close you at the stop order. In this case, you did not look at the structure, which was both primary and secondary, descending. At that time, you were looking for a long position, trading against the structure, which is a huge and most

[12:44] common mistake traders make. When you choose an order block to enter from, you must ensure that there is no semi-liquidity above it. If you enter a position from an order block

[12:56] , then with a high degree of probability the price will first remove liquidity, closing the same stop-loss, and only after that will it reverse in the direction of your take profit. Liquidity will also help you determine a

[13:09] truly valid order block from which to play in a situation where you see two points of interest in front of you. Let's look at an see two order blocks from which we

[13:21] want to enter a short position. But how do we choose the one that is take a look at the first jerblock. Above it we significantly reduces the likelihood of it being worked out. In this case, we would play

[13:34] from the second order block, since it does not contain the same flaw as the first. The first order block, in turn, you would skip, since it carries great risks associated with the withdrawal of liquidity that is located

[13:47] above it. Volume alone will not tell you whether the order block is being driven or whether you should expect a reaction from it. But just like liquidity, it can help in determining which order block to expect a reaction from when there are

[14:00] several areas of interest at once. It is worth remembering that the more volume was concentrated in the order block , the more power it has. Let's get back to the graphs. What, besides liquidity, will help you understand which order block to choose? In

[14:12] this case, the correct solution would be to look at the volume profile. And we clearly see that there is much more volume concentrated in the upper order block , which once again want to enter from the second order block. So, let's go with the resimir.

[14:26] When choosing an order block, we will first look at how it relates to the structure, and whether we are going against it. Next, we will look at the liquidity to see if it is order block, the removal of which will close us at stop loss. If

[14:41] we see several zones of interest, then the volume will tell us which order block will most likely trigger a reaction. Of course, this rarely happens in life . Everything is as perfect as you see in the pictures. But still, to consolidate the

[14:54] material, let's analyze the position. which I shared with my students. First of all, we look at the structure and see that it is clearly descending. The second thing we do is identify the areas where liquidity is concentrated. In

[15:06] this case, liquidity is concentrated behind the trend line. It is precisely on its removal in accordance with the structure that we will play. Now we look for imbalance. At this point it is extremely clearly visible. It is after the imbalance has been completely corrected that we

[15:20] wait for a reaction. In this situation, our order block is located above this imbalance . We clearly mark the last bullish candle before the fall. We check that there is no liquidity pool above our parent block . In this

[15:34] case, everything is clear. In this situation we will play short. In accordance with the structure, we will play on the removal of trend liquidity after the reaction to our order block, which will occur after the imbalance is completely covered. What did we

[15:47] were confirmed. We actually saw a reaction to our rblock, the removal of liquidity from the trend line and a continuation of the downward structure. But note that in this case the price went slightly beyond our order block. This happens

[16:01] quite often. This is why you need to place a stop loss above the upper limit. Of course, there are many other nuances when working with order blocks , and without knowing them, it will be extremely difficult to use an order block effectively . We talk about them on

[16:14] our Instagram account. in daily educational videos and posts on the topic of SmartMoney. So, it's time to sum it up. In this video, we learned about three types of use them. We talked about how an order block is formed and why it

[16:28] works. And most importantly, we've outlined three key rules you must adhere to in order to successfully work with order blocks. At the end, I want will help our promotion a lot,

[16:41] video. It will only take you a few seconds. Also, subscribe so you don't miss the next Smartmane video, which will be released very soon. And I say goodbye to you. See you in the next video. Goodbye.