Order Block Trading Strategy

Have you encountered a situation where you placed a trade that goes in the opposite direction with a strong momentum?

So, what happened?

The reason for this is central banks placed chunk of orders. And when we do have that situation, it is known as order blocks.

Order blocks are a viable trading strategy, and in this guide, we’ll talk about three order block trading strategies.

So, hopefully, by the end of this post, you’ll become familiar with this popular trading strategy.

Introduction

As a retail trader, you and I can’t control the market. We are talking about over $6 trillion worth of transactions daily in the forex market; how can we control that?

It’s the big boys known as smart money who control the market. Smart money refers to central banks, market makers, and institutional investors.

When they place an order, they don’t place it for thousands of dollars; they place it for millions and billions of dollars. That’s when the market moves, creating a situation known as order blocks.

What is an order block strategy?

The idea of an order block strategy is to ride along with the smart money. As mentioned earlier, as retail traders, we don’t control the market, so how about we do what smart money is doing?

We must create order blocks for the order block trading strategy. Bearish order blocks form when there is a large sell order by smart money. Bullish order blocks appear when there is a large buy order.

You can locate these zones at the end of a strong trend. After that, you just have to draw a rectangle on the origin of the new trend.

By plotting order block zones, we can move along with the big boys and place buy and sell orders.

You might be thinking, “How will these zones help me?”

Central banks and other market movers don’t place their orders at once. They wait and place their orders in regular intervals creating “blocks.”

They don’t place their orders at once because it can create high volatility and disrupt the market. That’s when the price returns to certain levels, so smart money can place their orders again, which presents us with an entry point.

So, now you know what order blocks are, we can move into the best order block trading strategies.

1. Pin bar and order block

Trading Strategy

The pin bar trading strategy combines well with the order block. The idea is to locate a bullish or bearish order block, and whenever the price returns to these levels, creating a pin bar, we can enter our trades.

The pin bar is a single candlestick pattern that mentions strong reversal, meaning the price has rejected this level.

One thing to remember is pin bar will appear in the bullish or bearish order block. So you wait for it to appear and then enter the trade.

Open buy trade

• Draw a bullish order block on the chart.
• Wait for the price to return to the bullish order block, creating a bullish pin bar.
• Enter the trade after the formation of the pin bar.
• Set your stop-loss at the low of the bullish order block.
• Set your TP at the closest bearish order block you see.

Open sell trade

• Draw a bearish order block on the chart.
• Wait for the price to return to the bearish order block, creating a bearish pin bar.
• Enter the trade after the formation of the pin bar.
• Set your stop-loss at the high of the bearish order block.
• Set your TP at the closest bullish order block you see.

You can see the bearish order block and pin bar on the chart below.

Notice how the price reversed after the formation of the pin bar. That’s when we entered our trade. The price did retrace a bit, but eventually, it continued in the downtrend.

2. Trend line and order block

Trading strategy

The trend line and order block is the simplest strategy you can try. All you have to do is to locate the overall trend, plot the bullish or bearish order blocks, draw a trend line, and when the price breaks, you enter your positions.

Open buy trade

• The overall trend must be upwards.
• Draw a bullish order block on the chart.
• When the price goes to the next high, draw a trend line.
• Wait for the price to come back to the bullish order block.
• Enter the trade when the price breaks through the trend line.
• Set your stop-loss at the low of the bullish order block.
• Set your TP at the next closest bearish order block.

Open sell trade

• The overall trend must be downwards.
• Draw a bearish order block on the chart.
• When the price goes to the next low, draw a trend line.
• Wait for the price to come back to the bearish order block.
• Enter the trade when the price breaks through the trend line.
• Set your stop-loss at the high of the bearish order block.
• Set your TP at the next closest bullish order block.

On the chart below, you can see a bearish order block. The overall trend was downwards, so we drew the bearish order block and plotted a trend line from where the price started returning to the bearish order block. When the price broke through the trend line, we entered our trade.

3. Wedge pattern and order block

Trading strategy

A wedge pattern appears from converging trend lines and indicates the market reversal. The pattern comes in two types; rising wedge and falling wedge.

We can enter the trade whenever the price forms a wedge at the order block zone.

Open buy trade

• Draw the bullish order block on the chart.
• The price must form a falling wedge pattern in the zone.
• Enter the trade after the formation of the falling wedge pattern.
• Set your stop-loss at the low of the bullish order block.
• Place your TP at the next closest bearish order block.

Open sell trade

• Draw the bearish order block on the chart.
• The price must form a rising wedge pattern in the zone.
• Enter the trade after the formation of the rising wedge pattern.
• Set your stop-loss at the high of the bearish order block.
• Place your TP at the next closest bullish order block.

On the chart below, we have the bearish order block. You can see how the price reversed after the appearance of the rising wedge pattern. So, here we entered the trade.

Conclusion

Order blocks are a strategy that can do miracles if you follow them properly. You must follow certain confluences with each strategy mentioned above and wait for the price to do its magic.

Why trade anything else when you can trade with the big players?

Frequently Asked Question