Order blocks in forex refer to the collection of orders of big banks and institutions in forex trading. The big banks do not just open a buy/sell order, but they distribute a single order into a check of blocks to maximize the profit potential. These chunks of orders are called order blocks in trading.
Our focus is to find those order blocks on the candlestick charts so we can trade with the big institutions and banks to make a profit from the market. It is not easy to find those blocks, but we can find them on a chart using confluences and other technical tools.
How to find order blocks in forex?
As we have already discussed, order block is the accumulation of orders in the market. So first, you should be able to identify signs of order accumulation on the chart technically.
In technical analysis, when a ranging market structure form or price moves in the form of a horizontal block, orders accumulate in that area. An impulse wave will form after orders accumulate and break the block or price range. This impulsive wave shows the imbalance and price trend made by institutional traders and big banks. Because most of the big market moves are made by banks.
So the above phenomenon on the candlestick chart shows the presence of order blocks in that area. We’ll trade the order block zone when the price returns to the order block zone in the future.
Types of order blocks
Order blocks are categorized into two types in trading based on order types.
Bullish order block
When a bullish impulsive wave forms after the break of a ranging market structure or block, it indicates the formation of a bullish order block.
When the price returns to the order block zone, we’ll open buy orders to trade with institutions.
Bearish order block
When a bearish impulsive wave forms after the break of price range or block, a bearish order block forms.
We’ll open sell orders from the bearish order block zone when the price returns to this zone in the future.
How to draw an order block zone in trading?
- To draw an order block, you should first learn to identify the chart’s price range or price block.
- In the next step, mark the highest point and the lowest point of the price range
- Draw a horizontal zone meeting the high and low of the order block zone. This will act as an order block zone.
It would be best if you always preferred to buy/sell from this order block zone.
How to trade using order blocks?
As we’ve learned, order block areas are under the attention of big institutions and banks. Institutional traders choose these zones to put their orders. So we should note these price areas, and when the price returns to these zones in the future, we can trade them.
Below I have explained a simple criterion to open buy and sell orders in case of order blocks.
When a bullish order block zone forms on the chart, place a pending buy limit order a few pips above the zone. Place stop loss a few pips below the zone.
When a bearish order block zone forms on the chart, open a pending sell limit order a few pips below the zone and place stop loss above the zone.
The bottom line is that order blocks are the best strategy to identify or track the orders of institutions and banks. This is a naked chart trading method, and I highly recommend this to traders to learn and apply it to their strategies. This will significantly improve your trading career.