Evolve FX
Order Blocks
What is an Order Block?
An order block is a concentrated area of supply or demand where the Market
Makers have previously sold or bought heavily so any return to this area there
is a high chance that it’ll be used for selling/buying once again.
Ideology behind Order Blocks
When we see a large significant price move we know that retail traders alone
are incapable of moving price like that so instantly we know that a large player
in the market has caused this price move (a.k.a leaving a footprint) so
essentially we know where the Market Makers have bought to cause the move
and MMs will tend to buy at price the same price they previously have bought
at. For example lets say Goldman Sachs wants to place 5000 lots on buying
gold at the price 1205, since Forex is a zero sum market the amount of buying
has to always equal the amount of selling so Goldman Sachs may only be able
to put down 2500 lots initially which is enough to move the market but they
want to fulfil their full position so on a return to that order block they’ll put in
the rest of their order and take price to their target.
How to identify an Order Block
A bullish order block will be the last down candle or last group of down candles
before a large significant push up and vice versa for a bearish one. Through
thorough back testing we’ve found that the best order blocks to use will be the
ones that break market structure as the price move had enough strength to
break through a barrier.
How to use Order Blocks
You can use Order Blocks either as an entry technique where you enter at the
top of the block and stop loss at the bottom of the bottom when buying or you
could potentially use it as an area of interest where you could enter using a
different technique.
Note
Order Blocks will work on all timeframes as price is fractal but generally the
higher timeframes will be stronger.