Understanding and Using Order Blocks in Trading

Jul 5, 2024

Understanding and Using Order Blocks in Trading

Introduction

  • Order blocks are crucial in trading but challenging to understand due to numerous methods and videos.
  • A comprehensive method has been developed to detect and display order blocks effectively.
  • Observations made to understand order blocks better.
  • Developed a price action concepts indicator incorporating new insights.

What Are Order Blocks?

  • Areas in the market with significant buying/selling activity before a large move.
  • Used by large institutions for liquidity.
  • Price returning to these levels usually causes a strong reaction.

Key Concept: Market Structure Shift

  • As price moves away from an order block, it changes market structure, creating:
    • Change of Character
    • Break of Structure
  • In the indicator:
    • Bullish order blocks: Positioned at the low of bullish structures.
    • Bearish order blocks: Positioned at the high of bearish structures.

Problem & Solution

  • Identified issue: Many detected order blocks are ignored when price returns to them.
  • Solution: Incorporate volume data into order blocks:
    • Green bar: Total buying volume.
    • Red bar: Total selling volume.
    • Provides percentage to gauge significance of order blocks.

Breaker Blocks

  • When an order block is mitigated, it forms a breaker block.
  • Indicates trapped buyers/sellers.
  • Return to this area causes positions to close, influencing price movement.
  • Integrated volumetric order blocks in the indicator for better trading decisions.

Customization Options

  • Settings available in the indicator:
    • Show Last option: Control number of order blocks displayed.
    • Internal Buy and Sell Activity: Enable to see volume data.
    • Show Metrics: Enable to view detailed data.
    • TimeFrame Feature: Display order blocks from different timeframes (e.g., 4-Hour).

Examples

  1. Bullish Scenario:
    • Bullish change of character observed.
    • Wait for retracement instead of buying at market high.
    • Indicator plots order block below change of character.
    • More sellers than buyers indicate potential exhaustion.
  2. Bearish Scenario:
    • Bearish market structure observed with more selling activity.
    • Price may continue to trend without immediate retracement.
    • Enable breaker blocks for potential reversal setups.

Secret Insight

  • Data on order blocks extends beyond specific candles to entire structural shift.
  • Provides new insights for sentiment analysis.

Additional Features

  • Mitigation Method: Set to close by default, options include Wick and Average.
  • Hide Overlap: Only show the most relevant overlapping blocks.
  • Length Option: Customize swing points for detecting order blocks.
  • More settings constantly updated, check Luxalgo.com for guides and support.

Conclusion

  • Video aims to clarify order blocks, their construction, and usage in trading.
  • Comments and feature requests welcome, join Discord for community support.

Further Information

  • Visit Luxalgo.com for more guides and updates.
  • Utilize the chat GPT feature for specific queries.