An order block represents the process of collecting orders from financial institutions and banks. The forex market relies on central banks and major financial institutions. It is therefore imperative that traders understand how the market works. Whenever the market builds an order block, the price moves like a range where most investing decisions occur.
What is the order block?
It is not common for financial institutions to invest in trading instruments suddenly. Instead, the best trading results can be obtained by spending a lot of money on analysis.
In addition, they often deal with money that is impossible for retail traders to acquire. In trading, smart money makes several decisions depending on the availability of prices.
The trade-in takes place in three or four steps, for instance, if a bank wishes to purchase $100M EURGBP. Their first step will be $20M, their second step will be $50M, and their third step will be $30M. When quotas of $100M are fully utilized, prices fluctuate.
There is no order block under every range, but the idea of order blocks is similar to ranges. Furthermore, we have no idea when and where the smart money moves. Thus, we will identify an appropriate order block based on the best location and price action.
Along with the order block, we must also understand the order flow. Normally, when a price moves from an order block, it will provide an order flow in any direction. However, higher-timeframe order flows indicate a market direction, where we have to identify order blocks in that direction.
Order block trading strategy
Previously, we discussed what an institutional order block and order flow are. With this strategy, we will enter the trade between one hour and four hours or the daily timeframes and identify the order flow using the weekly timeframes. Further, we will discuss the timeframes and currency pairs used in the order block trading strategy.
Timeframes
- Identifying the entry-level takes about an hour to four hours.
- To measure the order flow, we measure it every week.
Currency pair
In addition to being profitable in all currency pairs, this trading strategy is effective on all exchange rates. We have examined the system extensively and have found that it is effective in all major currency pairs, such as GBPUSD, EURUSD, USDJPY.
Bottom line
An overview of the order block strategy would be as follows:
- Take a look at the weekly order flow and whether it is going in the right direction.
- Determine the Fibonacci retracement levels and the premium and discount zone levels.
- It is expected that the price will move toward the order block soon after testing the order block, then it will come back down to test the order block again.
- You can enter the trade as soon as the price rejects the order block accompanied by a reversal candlestick.
- Almost all currency pairs can be profitable with the order block trading strategy. Although volatility is a factor in the forex market, it is essential not to lose sight.
