Video Summary
Order blocks form when price displaces and closes beyond the opening of up/down-close candles into an important higher-timeframe level.
Always confirm order blocks against a higher-timeframe level or fair value gap — otherwise the setup may be invalid.
The mean threshold is the 50% Fibonacci of the order block body; closes beyond it often invalidate the block.
Sweeps of liquidity are preferred before validating an order block but are not strictly required.
Stop losses can sit on swing highs/lows, the opposite end of the order block, or the mean threshold depending on desired R:R.
An order block is formed when price displaces and closes beyond the opening price of a single or series of up/down-close candles into an important higher-timeframe level, often after sweeping liquidity, and then uses that area as support or resistance on a retrace.
If the same pattern appears at a random spot without a higher-timeframe level (like an hourly fair value gap), it often represents equal highs/lows or a simple retracement rather than institutional liquidity, making the setup less reliable.
The mean threshold is the 50% Fibonacci of the order block body (from body low to body high). Ideally price should not close beyond this level for the block to remain valid; traders use it as an alternative entry when the opening price entry yields poor R:R.
Sweeps are preferred because they confirm liquidity capture, but they are not strictly required. The creator prefers waiting for a sweep before treating a pattern as a valid order block.
Common placements are on the nearest swing high/low, on the opposite end of the order block (for larger R:R), or just beyond the mean threshold depending on whether you prioritize fill probability or reward.
"This video covers order blocks, including how they work in smart money reversals and our approach to buy and sell sides."
The concept of order blocks is introduced as a key element in trading, particularly emphasizing their significance in smart money reversals.
The video explains the movement of prices in relation to order blocks on both the buy side and sell side of the market curve.
"Price that moves into an important level creates a high or buy side liquidity, which can be confirmed by displacement and closure below certain candle prices."
Important price levels can generate high or sell-side liquidity through the formation of order blocks, characterized by distinct patterns of price movement.
Observing the closure of candles relative to key price points is vital in confirming the validity of an order block.
"The mean threshold of an order block is the 50% Fibonacci level, and the price should not close below this threshold for the order block to remain valid."
The mean threshold of an order block is identified as the 50% Fibonacci level. When price actions respect this level, it suggests that the order block is in play.
If price closes below this threshold, it indicates a failure to maintain support or resistance as intended.
"For entries after a smart money reversal, look for an order block that signifies a bullish move after key downward closures."
This section emphasizes the importance of identifying order blocks following a smart money reversal, focusing primarily on bullish indicators.
Examples are provided to illustrate how traders can spot these order blocks and validate them through closes above confirmed down candles, thereby finding entry points to maximize potential gains.
“Marking out the mean threshold of this order block shows that the candles respect this level.”
The mean threshold of an order block is a significant point where traders can look to enter positions.
By positioning their stop loss at this mean threshold, traders can see increased risk-to-reward ratios, though it does have the downside of potentially not getting filled on the trade.
“If price displaces and closes below these up-closed candles, we create another order block.”
When analyzing price action, it is crucial to identify equal highs that lead to a displacement.
A valid order block emerges when the price retraces into an area of inefficiency, such as a fair value gap, thereby providing entry points for continuation of the trend.
“I usually place my stop loss on a swing high or low or the other end of the order block.”
The placement of stop losses is strategic, as positioning them correctly can significantly improve risk-to-reward scenarios.
Choosing the other end of the order block enhances potential rewards but increases the chance of getting stopped out due to wicks, making swing highs or lows safer options in many cases.
“What do you notice? We have down-close candles that swept all these lows, creating an order block.”
In practical scenarios, identifying down-close candles that sweep past lows can establish new order blocks.
Even if a trader misses an initial entry point, secondary entries into the order block can yield profitable outcomes, supported by strategic adjustments to stop loss placements aligned with market behavior.
