A solid order block trading strategy is often the missing piece for most traders

that use smart money concepts. And this is because they don't understand the
important criteria that actually creates a high probability order block. But in
this video, we've explained and simplified everything that you need to know. So you
never have to struggle with order blocks again. And to do this, we've broken down
the perfect order block trading strategy into six simple steps. So let's start with
step number one, which involves answering the question, what are order blocks? Here
we have an example of a chart. And the first thing we can immediately notice is
that the market is moving within an up trending structure. But when we look at this
second leg, you might be wondering why it shows to push up from this specific area.
Well, when we look over to the left side of the chart, we actually have a bullish
order block. And this is what was used as an area of support for the price to
continue higher. specific area. Well, when we look over to the left side of the
chart, we actually have a bullish order block. And this is what was used as an area
of support for the price to continue higher. And the reason for this is because
this is an area in the market, which showed a clear history of seller activity,
which is made obvious by the large amount of executed sell orders represented by
the bearish candles. So this makes it an area that smart money will target to fill
their large buy orders due to the lack of seller activity in the rest of the leg.
So to simplify this, bullish order blocks consist of bearish candles, and they act
as a form of support with the purpose to push the price higher. And then we also
have the other variation, which are the bearish order blocks, which is instead made
up of bullish candles. And these are used in the same way, only upside down,
meaning they instead act as a form of resistance on the chart. But this is only the
very basics, because where most traders go wrong is failing to actually understand
the further market structure that needs to be present in order to correctly
validate an order block. But we have a few pieces of criteria that makes this very
simple. The first thing to understand is that there isn't a specific number of
candles that can make up an order block. So to give an example for this, here on
the left, we have an order block that is made up of four candles. And then on the
right side, we have another order block that consists of just one single candle.
Both of these are valid order blocks. And this is because it doesn't matter how
long it takes for an order block to be created. The only variable that changes from
the different number of candles between these two bullish order blocks is the time
that the sellers were in control for. The next thing we need to cover is something
you might have already noticed, which is that when we mark out our order blocks, we
choose to use the candle's bodies instead of the wicks. So using this four candle
order block as an example, the order block spans from the first candle's opening
price to the last candle's closing price. And the same rule applies if it was just
a single candle order block, but it would just be from the first candle's opening
price to the last candle's closing price. And the same rule applies if it was just
a single candle order block, but it would just be from the opening price to the
closing price of just one candle. And then for the bearish order blocks, we use the
same parameters, but because a bearish order block consists of bullish candles, the
opening price of the first candle would be at the bottom, while the closing price
of the last candle would be at the top. So now that we know how we mark out an
order block, let's move on to the next step, which involves how we can confirm
whether an order block is valid. So using this chart from before, we know that this
formation of bearish candles formed a bullish order block that went on to be
respected when the price later drew into it. But let's say we were at the point in
time. When these bearish candles had just formed, the question we have to ask is
whether these bearish candles have currently created a bullish order block. And the
answer would be no. And the reason why is because we haven't seen what the price is
going to do next. For example, the price could have just ended up moving sideways,
which would mean those bearish candles never ended up forming an order block. This
is because in terms of the criteria needed for these candles to become a bullish
order block We need to see an impulsive bullish move that pushes through the
highest top wick of the bearish candles Which in this case is the first candle and
it's only after we see this break of structure That we can confirm that these
bearish candles have created a valid bullish order block So to give another example
for this here We have four bearish candles that have the potential to become a
bullish order block But this time the highest top wick is found in the third
candle. So this would mean in order to confirm this as a valid bullish order block,
it would have to break through the high of the third bearish candle. And then as
for bearish order blocks, we are looking for the same break of structure, but it's
instead upside down, meaning we are looking to see a break of the lowest bottom
wick found in these bullish candles in order to confirm the bearish order block is
valid. So now with this knowledge, let's break down where we would find the next
order block within the rest of this chart structure. So we first have this bullish
impulsive move, which was then followed by two bearish candles. And these two
bearish candles had the potential to become another bullish order block. But as we
can see, the following bullish move failed to push up and break the high before the
price then fell back down, which means that the candles never managed to create a
bullish order block. But when we look at the next bearish candle, we can see that
this single candle actually did create an order block because the high of the
candle was clearly broken during the bullish move that followed. Now you may be
wondering why we don't include these other two bearish candles within the order
blocks parameters. And the reason is because of the presence of these two bullish
candles that created a gap within the bearish momentum. So this means the final
piece of criteria that we need to know when defining an order block is that if the
order block involves multiple candles, they have to be in sequence with no opposing
colored candles in between. So now that we know how to correctly identify and
validate an order block, the next thing we need to learn is how we find the highest
probability order block set-ups, starting with our next step, which involves
overlapping order blocks with fair value gaps. So we know that in order for this
order block to be valid, we need to see a break of structure through the high of
these bearish candles. But when it comes to determining whether this is a high
probability order block, the first detail is actually found within the bullish move
that created the break of these bearish candles. But when it comes to determining
whether this is a high probability order block, the first detail is actually found
within the bullish move that created the break of structure. This is because during
this impulsive move, we are wanting to see the formation of a bullish fair value
gap. And the reason for this is because it shows dominance in the buying power,
which is important if we are intending to use it as a support later on. But the
criteria that we are interested in here is the placement of where the fair value
gap is created. This is because we want to see it form within the range of the
order block. As this would mean, we would now have two overlapping PD arrays,
creating a strong bullish confluence within this highlighted area. And then here we
have another example of a bullish order block, which also happened to create a fair
value gap in the following bullish move. But the difference here is that the fair
value gap was created after the price had already moved out of the range of the
order block, which means in this case, we wouldn't consider this a high probability
order block because it's lacking the confluence with the fair value gap, which
means only one of these PD arrays can be targeted instead of the combination of the
two together. And then we have one more example here, and this time we can see that
the impulsive move failed to make any form of fair value gap at all. This shows a
weakness in the bullish momentum, meaning this also wouldn't be considered a high
probability order block. So to summarize this, when a fair value gap forms in the
move that created an order block, it creates confluence between the PD arrays,
which strengthens the order block setup. But it's important that the fair value gap
actually overlaps with the order block because this creates a golden zone of
support that we can target. But remember, if the fair value gap fails to form
within the order block area, or it fails to create a fair value gap at all, we
wouldn't consider it a high probability order block. Now let's move on to the next
step for finding high probability order blocks, which is that you should only use
order blocks that are unmitigated. Here we have another example of a chart. And
with a little bit of analysis, we can see that there is a valid bearish order
block, which is also overlapping with a bearish fair value gap, which means it
passes the criteria to be a high probability order block. And then when we move
forward in time, as expected, we can see that it did end up being respected as an
area of resistance. So now that we've seen this order block has been successful in
creating a rejection. You might then think this could
be a great resistance area to target in the future, but in reality, it's more than
likely that this order block will no longer be respected, and the price will simply
push past it. And this is because once an order block has been attacked, it then
becomes mitigated, which in simple terms means we do not want to use an order block
more than once. This is because the reason why smart money target order blocks for
their trade entries is because of the large amount of unfilled orders sitting in
the area. So when the market pushes into an order block, most of those unfilled
orders will then become filled, which means there is no longer a reason for smart
money to re-target the order block again in the future, which is why we should also
avoid reusing the order block again too. And this applies even if the market has
barely pushed into the order block, like we can see in this case. Because it is
still considered mitigated, so we don't want to use it for another setup. And then
another small tip worth mentioning here, is that when we draw out the range of an
order block, the 50% mid level of the order block is an important level to pay
attention to. This is because in terms of a bearish order block like this one here,
the area below the 50% mid level is typically the most concentrated point of
rejection because this is where we would find the most orders being placed, but
this doesn't mean the order block will fail. If the price were to dip into the
upper half, the lower half is just considered a stronger area, especially if the
fair value gap is also positioned in this part of the range. And then for the
context of bullish order blocks, this would obviously be the other way round,
meaning the stronger half of the order block would be the upper half. But it's
important to emphasize that this doesn't mean the other half of an order block
isn't relevant. It's just a helpful tip to be aware of when planning your setups.
So now moving on to the next step. We have another crucial piece of criteria for
finding high probability order blocks, which is how we should only use order blocks
that were created from a previous PD array. Here we have a new chart, and the first
thing we should immediately notice is that the market has created a liquidity sweep
from this previous swing high, and we can confirm this sweep with this change of
character that was created during the bearish pullback that followed. And now if
you haven't noticed already, this market structure has actually created a bearish
order block along with an overlapping bearish fair value gap. So that makes this
our first example of a very high probability order block. And this is because with
the sweep on the liquidity having occurred, the market structure has signaled which
direction it intends to move in next, and because the order block was created as a
result of this PD array being respected, it makes the order block much more likely
to also be respected because it supports the bearish directional bias of the market
structure. And to give another example, we have this chart here, but this time, the
market is progressing in an up trending structure. And by using the knowledge we
have learned from our previous videos on liquidity and fair value gaps, we know
that in order for this bullish trend to continue progressing, it needs to both
create and find support in the bullish fair value gaps. Like this one here, but
what's interesting is that when we analyze the move that drew into and respected
this FEG, we can see that it actually created another bullish order block, which we
can see was confirmed with the break of structure during the following bullish leg.
So this is our next example of a high probability order block because it was
created in the move that respected another PD array, which in this case was a
bullish fair value gap. And going back to how we mentioned that the market wants to
target fair value gaps to use as support during trending phases, we can see that an
overlapping bullish fair value gap was created within the order block, making this
a strong support that was then used to create the next leg up. So the takeaway here
is that you should only be targeting order blocks that are created by another PD
array. For example, this could be a sweep on liquidity, a fair value gap, or even
another order block, because this not only makes sure that the order block is
following the correct order flow, but it also strengthens any other PD array that
it overlaps with, and this moves us on to the next step, which is that you should
only trade order blocks that align with the higher time frame market structure.
Here we have a 15 minute chart, and within the market structure, we can identify
two separate valid order blocks, and each have also formed their own individual
fair value gaps. But the issue here is that one of them is bullish, whilst the
other is bearish, which means they are conflicting in their directional bias. And
it's this type of scenario, where a lot of traders become confused about which PDE
array is more likely to be respected. So this gives us a great example as to why we
must always use top-down analysis, because when we zoom out onto the four-hour time
frame to look at the larger market structure, we can actually see that the price
action is currently in the process of playing out a typical market maker sell
model. This is because we have a liquidity sweep at the top of the chart, which is
then followed by a change of character, suggesting that the directional bias has
now switched to bearish. So now looking at this chart with both time frames side by
side, the price action we are seeing on the 15 minute timeframe is represented by
the last candle that formed on the 4 hour timeframe and with some further analysis,
we can see that this 4 hour candle actually rejected off of a 4 hour bearish fair
value gap that was created within the 4 hour order block. So in terms of which of
the two 15-minute order blocks is more likely to be respected, the answer would be
the bearish order block because it forms during the move that respected the 4-hour
bearish fair value gap, which means it aligns with the larger time frame market
structure. And when we move forward in time, this is exactly what we see. The price
draws into the bearish order block before then creating a strong move down, which
completely ignores the bullish order block. If you found this video helpful, please
leave a like and then comment what trading concept you'd like to see us cover next.