Overview
This lecture covers the concept of breaker blocks in trading, their identification, psychology, types, and strategies for high-probability setups using price action and candlestick patterns.
Breaker Block Basics
- A breaker block is a failed order block that becomes a key supply or demand zone after being broken.
- When price breaks a supply or demand zone without respecting it, the zone switches its characteristic (supply becomes demand and vice versa).
- Breaker blocks are used for mitigating positions and adding trades.
- They work best in strongly trending markets with minimal pullbacks.
Breaker Block Psychology
- After a market structure shift, traders trapped in losing positions hope for price retracement to break even, causing increased selling or buying.
- Retail traders see breaker blocks as trend line breakouts and often enter trades during retests of these areas.
- Breaker blocks act as high-probability reversal points due to trader behavior and liquidity dynamics.
Identifying Breaker Blocks (Candlestick Perspective)
- In bullish scenarios, look for the last bearish candle that failed to reject price before a sharp upward move.
- The breaker block often sweeps the liquidity of the previous candle's low/high.
- These principles apply to all time frames and price charts.
Criteria & Rules for Valid Breaker Blocks
- Price must clear buyside or sellside liquidity before a market structure shift.
- For bullish setups, price must form a higher high; for bearish setups, a lower low.
- After clearing liquidity, price should reverse direction.
- Breaker block is valid only if price breaks and closes above/below the block with the candle body (not just a wick).
- Breaker blocks are for one-time use; once mitigated, they are not reused.
High-Probability Breaker Block Setups
- Best setups occur after a liquidity sweep pattern, typically identified by a candle with a long wick/body followed by a sharp reversal.
- Trading at the breaker block is preferred over fair value gap if price is unlikely to return to the gap.
- Entry options include single time frame trading or waiting for lower time frame confirmation within the breaker block.
- Strong setups occur when breaker blocks coincide with liquidity voids (gaps) or when paired with order blocks, increasing respect and likelihood of a price reaction.
Key Terms & Definitions
- Breaker Block — A failed order block that turns into a key supply or demand zone after a break.
- Order Block — A significant price area where major buying or selling previously took place.
- Market Structure Shift — Change in the price trend direction, often after breaking key highs or lows.
- Liquidity Sweep — Price action that clears out stop losses or liquidity above/below recent highs/lows.
- Mitigate — When price returns to a level to fill previous orders or reduce risk.
Action Items / Next Steps
- Practice identifying breaker blocks and applying the criteria on recent charts.
- Review concepts of liquidity sweeps, order blocks, and market structure shifts.
- Watch the full lecture video for visual examples and chart analysis.