Hey traders and welcome to another episode of Smart Risk. Today in this video, we will dive deep into breaker blocks and show you how to use them to get one step ahead of the market. Mastering this concept will provide you with insights into identifying high probability trading setups on the price chart and help you avoid missing perfect trades. We will also explain the various types of candlestick breaker blocks, trading strategies, and price actions associated with breaker blocks that you might encounter in the market. Additionally, we'll break down the key criteria and rules for identifying highquality breaker blocks and trading setups. So, traders, if that's something you're interested in, please give this video a thumbs up to show your support and subscribe to our channel if you are new. See you after intro. [Music] [Music] Welcome back traders. So let's get started starting with the basics. What is the definition of a breaker block? A breaker block is a previously failed order block that becomes a key supply or demand zone on the price chart. Generally this occurs when a previous order block is broken in the opposite direction causing it to switch its characteristic from supply to demand or vice versa. Essentially, a breaker block is used to mitigate positions and serves as an area where positions are added. But there is a pro tip to consider. Every time the price breaks through a key demand or supply zone without respecting it, that area switches its characteristic. A supply zone becomes a demand zone and a demand zone becomes a supply zone. The same rules apply to order blocks. The market might ignore the supply and demand of an order block for various reasons. including shifts in market structure, being overvalued or oversold, tapping into higher time frame key areas, the release of important economic news or other fundamental factors. When a valid demand order block fails to reject the price and price break through it to the downside, it becomes a supply level which is called a breaker block. In this scenario, it is expected that the price will reject this area and then push to the downside. Now let's see what is the psychology behind the breaker block and how it works. Let's say we have a bullish break of structure above the last high with inefficiency. This move provides a valid order block associated with the recent break of structure offering an opportunity to go long. However, if the price makes a market structure shift by pushing and closing below the most recent low point, the directional bias changes to bearish. As a result, our demand level turns into a supply level after the price breaks the order block to the downside. The psychology behind the breaker block is that traders who went long from the order block after the recent market structure shift, these traders are now trapped and expect the price to return to their break even spot. So, they can close their long positions without a loss. Closing a significant amount of buy orders in this specific zone will fill numerous selling orders in a short period, creating massive selling momentum in the market. Additionally, retail traders identify the previous market structure shift as a trend line breakout. They eagerly wait for the price to come back up to confirm their trading setup, providing them with an opportunity to go short from the retest area, which is the breaker block. Furthermore, traders will go short at the breaker block because they view this area as a key supply zone. These actions make the breaker block a well-defined supply area, providing a high probability for short positions and resulting in price reversals from that area. However, another key point to consider is that breaker blocks are usually most effective when the price is moving very bullish or bearish with minimal pullbacks and when the price is not respecting the premium or discount supply and demand areas along its path. Now, let's proceed to the next topic and see how to identify breaker blocks from the candlestick perspective. In a bullish scenario, a candlestick based breaker block is an area that failed to reject the price. This refers to the last selling candle that formed before a sharp upside move. This candle typically breaks below or sweeps the liquidity of the lowest point of the previous candle. For example, in this bullish diagram, we identify this red candle as a breaker block. This candle represents the last bearish candle before the price initiates a drastic upward movement, having taken out the lowest point of the previous bearish candle and effectively swept its liquidity. In a parallel scenario occurring in the second candle series, it refers to the last bullish weak candle that formed just before a sharp upside move which breaks below or effectively sweeps the liquidity of the lowest point of the previous candle. These concepts are also applicable to bearish markets. It's important to note that these principles can be applied across various time frames and any price action-based chart. Please make sure to watch the video attentively until the end. In the second section, we will explore the criteria and rules for identifying valid breaker blocks and examine scenarios that make a breaker block an ideal entry area for executing winning trades. To identify valid breaker blocks and use them to our advantage, we need to consider several criteria and rules. Clearing buyside and sellside liquidity. The first criteria that need to be considered in identifying valid breaker blocks is that the price must clear an area of buyside or sellside liquidity before forming a market structure shift. Here's a pro tip to consider. When identifying a valid order block, the price must break and close above or below the recent swing high or low to form a valid break of structure in conjunction with the order block. However, this requirement is not obligatory for a breaker block. There is no need for the price to close with a candle body above or below the recent swing low when identifying a breaker block. The second rule is that in a bullish scenario, the price's sharp movement must form a higher high and in a bearish scenario, it must form a lower low. This ensures that the price pushes significantly higher or lower over several candles to filter out single candle pumps or dumps in the market before forming a market structure shift. This precaution is necessary because we cannot rely on manipulated moves or moves driven by significant excitement. The third rule emphasizes that once buyside or sellside liquidity has been taken out, the price must start to reverse its movements. The fourth rule states that a breaker block is only considered valid if the price breaks and closes below or above the breaker block with the body of the candle. A penetration with just a shadow or wick is not acceptable. Rule number five, breaker blocks are considered for one-time use. This means we focus on the trading opportunity when the price first enters a breaker block. Once a breaker block has been mitigated, we do not consider it as an area of interest for future trading. To integrate all the criteria and rules for identifying valid breaker blocks, let's examine a real chart example. We're looking at the Euro Dollar 15inut chart. Initially, there's a swing high followed by a swing low. Then we see a strong upward push that breaks and closes above the previous swing high. This forms a valid order block indicating strong demand for long positions. Now that the buyside liquidity is taken, the market suddenly reverses direction after confirming a new higher high, pushing downward. Eventually, it breaks and closes below the low of the last bearish candle, marking a shift in market structure. This zone now qualifies as a valid bearish breaker block, signaling that buyers in this area have been stopped out. Since we've seen a bearish market structure shift and an area of demand that is now turned into supply, we anticipate the price to face rejection from this breaker block and continue its downward movement. As seen, the price initially moves upward and pauses temporarily within the breaker area. After accumulating more buy orders, it finally gains momentum and pushes downward. Moving forward, the first highquality type of breaker block that offers a high probability of success occurs when it forms right after a liquidity sweep pattern in the market. As discussed earlier, a liquidity sweep pattern is characterized by a single candle that clears out liquidity above or below the previous high or low. This pattern typically precedes a swift and significant market reversal. In this scenario, we anticipate an immediate reversal in price direction following a liquidity sweep. After the sweep, we expect the price to quickly return to the range of the most recent swing low or swing high. We identify a liquidity sweep by a candle with a long wick or body, followed by a sharp and immediate price movement that results in a market structure shift. Upon closer look, we see that the price has formed a valid unmititigated breaker block precisely at the location of this last buying candle. This candle was formed just before a sharp downward movement. This breaker block fulfills all the criteria of an ideal setup. The price cleared out sellside liquidity and after establishing a new lower low, immediately reversed its direction and created a market structure shift by breaking and closing above it. Here we have identified a valid breaker block located above this fair value gap. Placing our entry at the fair value might cause us to miss this ideal buying opportunity as the price is unlikely to return to the fair value gap once it moves away from it. In this scenario, the price is expected to react from the breaker block rather than the fair value gap. Therefore, the entry should be placed at the highest point of the breaker block with a stop loss a few pips below the fair value gap. When executing a trade, there are two options for placing an entry. One approach is to opt for a single time frame entry on the current time frame. Alternatively, a more conservative strategy involves seeking additional confirmation. This can include waiting for multiple reversal patterns such as a change of character observed in lower time frames which forms inside the breaker block area identified on the higher time frame. The second highquality setup occurs when a breaker block coincides with a significant liquidity void in the market. This typically happens when the price breaks the breaker block with inefficiency, leaving the breaker block area inside a gap. This scenario presents an excellent opportunity to execute buy or sell positions with a high probability of success. Another high probability setup occurs when a breaker block is paired with an order block. In this scenario, an order block forms near the breaker block area. These breaker blocks are particularly powerful because the price is likely to respect them. They represent areas where numerous orders were previously executed in the market and there may still be orders held in that area. Therefore, there is a high probability that the price will return to retest that area. In this scenario, we have identified a valid breaker block paired with an order block. We set our entry at the highest point of the breaker block and patiently wait for the price to trigger our executed trade. That's it traders. Thank you for watching this video. I hope you found it informative and useful. Don't forget to hit the subscribe button and turn on notifications to stay updated on our latest videos. We value your feedback and suggestions. So, please leave your comments below and let us know what topics you'd like us to cover in our future videos. We appreciate your support and look forward to seeing you in the next