Overview
This lesson focuses on identifying and understanding institutional order flow in the forex market, using higher time frame charts to anticipate liquidity and price movements.
Institutional Order Flow Concepts
- Institutional order flow refers to the movement of price driven by large players seeking liquidity.
- Focus on where the highest levels of liquidity are in relation to previous and current market positions.
- Large pockets of liquidity often exist below recent lows or above recent highs.
- Ignore wicks when analyzing liquidity; prioritize the bodies of candles, where institutional volume is concentrated.
- Wicks are mainly associated with retail orders and can indicate extreme or erroneous price delivery.
- Markets seek liquidity by running stops, often moving price just below candle bodies.
Order Blocks & Liquidity Voids
- An order block is a significant up or down candle before a strong move in the opposite direction.
- Liquidity voids occur when a sharp price move leaves little trading in a price range, which markets later revisit to "rebalance."
- Price tends to revisit order blocks and liquidity voids to fill them.
- The mean threshold (middle) of an up or down candle is often respected by subsequent price action.
Chart Time Frames & Analysis
- Start analysis from the monthly chart, then move to weekly and daily for more detail.
- Major institutional liquidity and order flow shifts are determined on monthly and weekly charts.
- Daily charts will react most strongly at levels determined by higher timeframes (monthly/weekly).
- Mapping these levels helps anticipate significant price swings and market direction changes.
Order Flow Shifts & Patterns
- When price violates the body of a key candle (order block), expect a strong move toward the next liquidity pool.
- Institutional order flow shifts from bullish to bearish and vice versa at key levels mapped on higher timeframes.
- Smart money uses stop runs and mitigation blocks to enter and exit large positions, often triggering retail stops.
Practical Application
- Draw higher timeframe order blocks and liquidity zones on your chart and watch how price on lower timeframes reacts to those levels.
- Expect significant expansions or retracements as price hits these institutional zones.
Key Terms & Definitions
- Order Block — The last up or down candle before a reversal, used by institutions to enter/exit large trades.
- Liquidity Void — A gap in trading activity after a sharp move, drawing price back to fill the imbalance.
- Wick — The thin lines above/below candles, representing price extremes mainly caused by retail trades.
- Mitigation Block — A candle body used to neutralize (close) prior positions after a stop run.
- Smart Money — Large institutional traders that dominate price movement with substantial capital.
Action Items / Next Steps
- Mark monthly and weekly order blocks and liquidity voids on your charts.
- Review recent market swings to practice identifying institutional order flow patterns.
- Prepare for next lesson by noting how daily price reacts at higher timeframe levels.