Order blocks are areas of price consolidation where large orders have been placed by institutional investors. These orders can create significant support or resistance levels, making them important to identify for traders.
The order block trading strategy is a popular way to trade these areas. It involves identifying order blocks on a price chart and then entering trades in the direction of the break-out from the block.
How to identify order blocks
Order blocks can be identified by looking for areas on a price chart where there is a large number of candles with small bodies. This indicates that there was a lot of buying or selling pressure in that area, which can lead to a significant move in the price once the block is broken.
Another way to identify order blocks is to look for areas where the price has been rejected multiple times. This is a sign that there is strong support or resistance at that level, which could make it a good place to enter a trade.
How to trade order blocks
Once you have identified an order block, you can enter a trade in the direction of the break-out. The stop loss should be placed just below or above the order block, depending on whether you are trading a long or short position.
The profit target can be placed at a predetermined distance from the order block, or it can be trailing stop.
Here are some tips for trading order blocks:
- Use multiple time frames to confirm the order block.
- Look for order blocks in trending markets.
- Use a stop loss to protect your capital.
- Be patient and wait for the break-out before entering a trade.
FAQs
1. What are the benefits of using the order block trading strategy?
The order block trading strategy can be a very profitable way to trade forex. It is a relatively simple strategy to understand and implement, and it can be used in a variety of market conditions. Additionally, order blocks can provide a high probability of success, as they are often followed by significant moves in the price.
2. What are the risks of using the order block trading strategy?
The main risk of using the order block trading strategy is that the price may not break out from the block in the direction you are expecting. This can lead to a loss if you are not careful. Additionally, order blocks can be invalidated by news events or other market shocks.
Conclusion
The order block trading strategy is a powerful tool that can be used to profit from forex trading. However, it is important to understand the risks involved before using this strategy. By following the tips in this article, you can increase your chances of success when trading order blocks.
