One of the highlights of trading from a pure price action technical analysis standpoint is the lack of need for indicators. By simply observing what a coin has done in the past at a certain price, a sharp technical analyst can formulate an idea as to what a coin will do when it reaches that point again, allowing you to create a trading idea and executable plan.
The backbone of the order block idea mirrors very closely the concept of standard support and resistance. A Bullish Order Block is created by a down move that precedes an up move that resumes the trend, makes new highs, and/or breaks market structure. This signifies a move by larger/institutional sized market participants in which price is driven lower to not only shake out participants, but also to buy the currency/coin at a lower price as well.
This zone is then protected by the institutional players the next time the market moves back to that range, as it is their goal to sell at a higher price than they bought at that level. Most analysts highlight this down move by drawing a horizontal box from the top of the candle body to the bottom, then dragging it across the chart to indicate the price levels visually, allowing them to prepare to act accordingly when price moves back into the price level.
These order blocks can be drawn on all time frames and even overlap to indicate confluence of levels. As always, the higher the time frame, the stronger the signal. As price continues to come back to these levels, they lose strength, the powers that be who are “protecting” these levels lose interest or the capital needed to prevent price from dropping below the order block. Similar to when support flips to resistance, the bullish order block will then act as resistance when price breaks below it.
As you may have guessed, a Bearish Order Block, is highlighted the same way, but instead of a down move preceding an up move, a bearish order block is created by an upmove before a down-move which resumes the downtrend, makes new lows and/or breaks market structure. These levels are created by institutional short sellers, who will bring the price up to create liquidity from breakout/FOMO buyers and stop losses from shorts, so that they can sell at a higher price with the necessary volume.
The next time price returns back to this level, it is in their best interest to protect this level and send price back lower to keep their shorts in profit. Trading the order block is very simple. When the trend is bullish, place orders throughout the bullish order blocks, with the larger orders lying at the bottom of the order block (lowest price).
A stop loss should then be placed directly beneath the order block, so in the event that the institutional buyers can no longer keep price afloat, you are also out of the trade with them. The same strategy is to be applied to bearish order blocks when selling/shorting. Place your sell orders within the bearish order block, with the larger asks in the highest part of the block, and an accompanying stop loss just above if you are shorting.
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