A market behavior indicating order collection from financial institutions is order block. Market participants in the forex market are mainly central banks and financial institutions.
Trades must therefore be performed with a good understanding of the market. Order blocks on the market move like ranges when most investments are made.
When the order building is complete, the market makes a sharp move to the upside and the downside. It is essential to recognize that order block trading strategy includes the activities of institutional traders.
Institutional traders are the main price drivers, so any strategy that includes them might result in higher prices
What is the Order Block?
It is rare for financial institutions to make sudden investments in trading instruments. The best trading results are achieved by spending a lot on analysis. Moreover, retail traders cannot often arrange the kind of money that they play with.
When trading, smart money takes several steps based on the price available at the time. A bank would need to trade in three or four steps to buy $100M EURUSD. Initially, they plan to take $20 million, then $50 million, then $30 million. When the full $100M quota is completed, the price usually changes.
While Order blocks appear to be a range, they are not all ranges. Additionally, we do not know when and where the smart money will move. The best order block will be determined by price action and location.
Order Block Trading Strategy
As we discussed in the previous section, the institutional order block and order flow are both defined. To enter the trade, we will use a 1 hour - 4-hour timeframe, or a daily timeframe, and identify the order flow weekly. Also, the Fibonacci sequence will be used to determine the potential location to which the market will move.
- An entry-level position can be identified in one to four hours.
- A weekly time frame is used to measure order flow.
- Pair of currencies
- The best aspect of this trading strategy is that it can generate profits across all currency pairs.
Nevertheless, after extensive research, we have determined that it is effective in all major currency pairs, including EURUSD, GBPUSD, and USDJPY.
What Is the Best Way to Find and Use Order blocks Forex Trading?
In addition to the primary trading strategy, order blocks are a high probability setup to keep an eye out for. Order block zones don't form often; you cannot use them as a single strategy.
In addition to your core trading strategy, they can generate additional profit if you use them as a setup. My trading is based on that method. I use supply and demand as my core strategy, which provides me most of my trades, and I look for another two or three setups along the way.
The patterns in my book are blocks, pin bars, and reversal patterns. The diversification they provide to my primary trading strategy allows me to make more money while lowering my overall risk at the same time.
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