Overview
This lecture introduces key trading concepts such as order blocks, fair value gaps, market structure, and liquidity, focusing on how institutional players manipulate markets and how traders can identify and use these patterns for entries and exits.
Basics of Market Manipulation & Players
- Markets are influenced by both individuals and institutions using algorithms to minimize human error.
- Large players (institutions) have more capital and influence, creating manipulations and signatures (footprints) in the market.
- Retail traders often lose due to lack of understanding of these manipulations and poor risk management.
Key Trading Concepts: Order Blocks, Fair Value Gaps, and Imbalances
- Order Block: Last buying (bullish) or selling (bearish) candle before a major market move.
- Fair Value Gap (FVG): The gap between two candlesticks where no trading occurred, indicating imbalance.
- Order blocks are validated if connected to a fair value gap.
- Market imbalances (price or volume) often get "filled" or "tapped" in future price action.
Candlestick Basics & Analysis
- Each candlestick has four main points: Open, High, Low, Close (OHLC).
- Candle color indicates market direction: green (up), red (down).
- The gap between candle wicks/bodies can signal imbalances.
- Candlestick patterns (like engulfing or hammer) are less reliable without context.
Market Structure & Structure Mapping
- Three main market structures: uptrend, downtrend, and sideways.
- Structure mapping involves identifying swings (higher highs/lows or lower highs/lows).
- Trend direction should be confirmed across multiple timeframes (higher timeframe trend overrules lower timeframe trends).
Entry Models & Risk Management
- Entries are planned around order blocks and fair value gaps on refined (lower) timeframes.
- Entry is often made at the 50% level of an order block or fair value gap.
- Proper stop-loss (SL) and risk management are essential (place SL at logical liquidity points).
- Larger timeframes provide stronger levels, smaller timeframes offer pinpoint entries.
Liquidity, Mitigation, and Rejection Blocks
- Liquidity refers to areas where orders accumulate, often around previous highs/lows.
- "Liquidity sweep" occurs when price hits these zones then reverses.
- Rejection blocks (wick bases) and mitigation blocks act as supply/demand zones.
- Big players target retail SL clusters for liquidity before moving in their actual direction.
Advanced Topics: Inside Bars, Refinement, and Probability
- Inside candles (bars) on higher timeframes can also serve as order blocks.
- Refining order blocks on lower timeframes can provide better entries and smaller SL.
- Trading is a probability game—no setup is perfect, focus on risk reward and probability.
Key Terms & Definitions
- Order Block — The last bullish/bearish candle before a large move, indicating institutional activity.
- Fair Value Gap (FVG) — A gap between candlestick bodies showing price imbalance.
- Liquidity — Clusters of orders, often near previous highs/lows, which attract price.
- Mitigation Block — A zone where past orders are "mitigated" or balanced.
- Rejection Block — A zone created by a candle wick signaling strong rejection.
- Structure Mapping — Identifying major and minor and swings to establish trend.
- Stop Loss (SL) — Predefined price level to cap losses in a trade.
Action Items / Next Steps
- Review candle anatomy (OHLC) and practice identifying order blocks and FVGs on charts.
- Map out market structure and swings on different timeframes.
- Practice marking liquidity pools and planning logical SL and TP (take profit) levels.
- Complete any assigned homework or reading on market structure and order flow trading.