hey guys when trading in the financial markets you're going to make a lot of mistakes learning nothing from those mistakes is the mistake after numerous trades on multiple pairs it became evident to us that order blocks operate more effectively and generate profits when they are accompanied by certain conditions so in this video we are going to simplify the concept of order blocks in trading we are going to explain a rule-based approach toward the order blocks that are being respected by the market we will will explain what conditions are required for a valid order block how to effectively mark and trade them on the chart and also the internal and external Market structures Concepts that are required to combine with the order block concept so guys if that's something you are interested in make sure to hit the like button to show your support and subscribe to our Channel since we publish many Advanced trading [Music] [Applause] knowledge welcome back and let's get started generally order blocks are areas where the buying or selling orders reside the market has rejected these levels once so when it returns to these levels it might react to them again every order block is a supply or demand level but not every Supply in demand area qualifies as an order block let me show you how every reaction to a price level creates a supply or demand area it shows that for whatever reason Traders have opened massive buy or sell positions which cause significant price movements so when the price returns to these levels we closely monitor the price action to find Possible Trading opportunities but trading every supply and demand area would not be effective through time and witnessing repetitive patterns on the chart we have noticed that when supply and demand areas are accompanied by certain conditions the chance of working significantly improves one of the key supply and demand areas is order blocks so first let's see what conditions are required to consider an area of valid order block to trade then I will show how to effectively mark them on the chart so let's continue with the rules of a valid order block the first rule is having inefficiency inefficiency imbalance and fair value gaps are highly similar Concepts when a large amount of money enters the market and creates an imbalance between the buyers and sellers the fair value Gap patterns form between the candles creating a phase of inefficiency these movements on the chart show that smart money has entered the market and affected the price price often returns to these areas to accumulate the remaining orders which creates a trading opportunity the price takes off after reaching order blocks but only if there exist remaining orders so a supply or demand area that created the fair value gaps becomes a strong level we always Mark the fair value gaps on the chart when mapping the market structure which is the first rule of identifying a valid order block the second rule for having a valid order block is breaking the market structure in the bullish scenario when a price movement breaks the latest Market structure and closes above the recent High the origin of the price movement becomes highly important it shows that the demand area that created this movement is not an ordinary level but an influential area in the market structure with all being said a supply or demand zone is considered a valid order block that leads to a structural break the same concept is applied to the bearish scenario when a price movement breaks the latest Market structure to the downside the origin of the price movement becomes highly important it shows that the supply area that created this movement is not an ordinary level but an influential Zone in the market structure so these demand areas are considered valid order blocks here we have a moving uptrend this is the most recent break of structure which shows that the demand is still in control all these demand areas are considered an opportunity to go short but here is an important point the origin of this bullish price movement is highly important and provides the best trading opportunities there is a high chance that the rest become a victim of liquidity grab that's why we have to use a lower risk when placing trades in these areas if you have any doubts about identifying a valid break of structure or reversal make sure to watch our previous videos about Market structure Concepts which are linked in the description let's move on to the next rule but before we continue if you're curious about how we stay updated on financial news and fundamental analysis well we rely on fastb one of the best trading websites with various useful trading tools this site provides one of the most accurate and detailed economic calendar a tool we use every day before starting our technical analysis 247 economic live streaming also allows us to stay informed about the latest trading world's news and fundamental analysis so if you want to benefit from multiple trading tools that can significantly improve your trading make sure to check the link in the description last but not least the liquidity liquidity is where the stop losses reside combining the liquidity concept with order blocks enhances our understanding of market dynamics and provides valuable information for strategic decision-making grabbing liquidity in the direction of the current Trend before reaching a supply and demand area improves the quality of that area there are three common liquidity grab patterns that happen every day on the chart forming each one before reaching our order block increases the chance of success for our trade let's start with the first one the first liquidity grab pattern is when we have fair value gaps and an order block Zone precisely below our demand area so there is a high chance that the first demand area becomes the victim of a liquidity grab movement and then the price takes off when it reaches our order block Zone this will make our order block Zone even more powerful because right now the market contains the required liquidity for future movements for example here we have a demand area and a potential trading opportunity to go long but looking at the left side we can spot this gap between the candles precisely below the demand Zone now this Gap will act as a magnet for the price to come and fill it restore the balance grab the liquidity and continue pushing upwards when it mitigates the order block so here comes an important point before placing any trade you should look at the left side to see the market structure conditions to avoid this kind of unnecessary risk so when this kind of scenario forms on the chart there's a higher chance for this move to be just a liquidity grab and does not necessarily mean a reversal is coming making our order blocks Zone more powerful and a perfect trading opportunity to go long the second liquidity grab pattern happens by forming equal highs and lows equal highs and lows are interesting trading areas for traditional support and resistance traders in the bullish scenario below the equal lows contain lots of liquidity if the correction move consists of this kind of support area this is another confirmation that the conditions are ready for smart money to grab the liquidity and continue pushing forward when the price reaches the demand Zone the same concept is applied to the bearish scenario above the equal highs contain lots of liquidity if the correction move consists of this kind of resistance area this is another confirmation that the conditions are ready for smart money to grab the liquidity and continue pushing downwards when the price reaches the supply Zone defining precise rules for every scenario that happens on the chart is tough yet as you engage in back testing and live trading the key ize in adjusting your trading system to align with the optimal conditions that work most effectively for you back testing is necessary to obtain the performance of a trading setup but unfortunately it can take a lot of time that is why we use Trader Edge we use the trader Edge platform for back testing our exclusive trading strategies if you're interested in using Trader Edge as your back testing tool be sure to check out the link in the description below now that we have discussed the rules for identifying a valid order block let me show you how to effectively mark them on the chart we Mark the last Candlestick before the start of a drastic bullish move as our order block Zone regardless of the candle color we believe that the decisions are made during this candle which makes it an important area where the buying orders reside when the price Taps into this area again we will open a buy position and set our stop below the Zone in some cases we even look for more confirmations and entry setup in the lower time frames which we will discuss in the future videos same concept for the bearish scenario we Mark the last Candlestick before the start of a drastic bearish move as our order block Zone this is the basic form of marking the order blocks on the chart but in some scenarios we would have some adjustments for example sometimes a wick grabs the liquidity below the order block Candlestick which makes us add this Wick to our Zone but the problem is we would have a large order block to trade that's why in situations like this we will look for more confirmations in the lower time frames to execute trades at a better price sometimes the Candlestick that created the order block is a very small one there is a chance that the price will mitigate this Zone and respect the low but it is not a law if you trade this on the real chart you will notice that many times the market will break through these areas before start pushing upwards so in situations where the order block contains a small area we will set a large stop stop loss below the order block or we consider a larger area on both sides but how do we know that this candle is smaller than the average Candlestick range we will measure it by applying the ATR indicator on the chart the average true range or ATR is an indicator that measures Market volatility it gives you the average size of the previous 14 candles in default settings so here is an extra rule for marking the order block Zone if the order block Candlestick is smaller than 60% of the ATR we will extend our Zone to one ATR from both sides for example here the ATR shows that the average size of the past 14 candles is 20 Pips so if the order block range is lower than 60% of 20 12 Pips we will extend our order block Zone to 20 Pips now based on the market structure Concepts three kinds of order blocks form on the chart continuation reversal and ranging order blocks continuation order blocks have happen when the price is trending upward or downward and Order blocks form aligned with the dominant trend for example imagine that we have an uptrend with a series of higher highs and higher lows each of the demand order blocks that form along the way is an opportunity to go along with the dominant uptrend but if a change of character appears a supply order block automatically will form which is against the dominant uptrend usually the continuation order blocks have a higher chance of success because they are in line with the Trend however reversal order blocks have the potential to gain massive risk to reward ratios the next order block is the ranging order block this kind of order block forms when the price is in a Range phase before a drastic move happens in the market when the price returns to the ranging Zone we expect the market to reject this area and continue pushing upwards from the visual perspective identifying the range zone is easy it feels like the price is trapped inside the Box however from the the mechanical perspective we need at least four consecutive candles each one closing back inside the range now all of the rules and conditions we have discussed so far are crucial for identifying valid order blocks however there is one important factor that needs to be considered to increase the chance of winning trades combining order blocks with Market structure Concepts finding an entry Zone alone is not enough for a successful trade that's why we always apply a top- down analysis to the chart to gain a comprehensive understanding of the current Market condition and future movements this top down analysis consists of three major time frames starting with the 4-Hour chart we apply the concepts of Market structure to the chart to find the market Direction key levels and supply and demand areas following we zoom into one hour which is our major analysis time frame on the 1 hour chart we identify the trend breaks reversals fair value gaps liquidity areas order blocks and trading opportunities furthermore we zoom in to 15 minutes to find confirmations in the lower time frames and execute orders so guys that's it for this video I hope this video provided value to you if it did please go ahead and smash the like button to show your support and if you're new here consider subscribing to our Channel see you in the next episode