How to trade order blocks, order flow, and fair value gaps — GhostTraders
order blocks in forex are specific price levels of supply or demand, where big participants and big banks have their orders either in the form of limits or pending orders. we have two types of order blocks in forex; A bearish and a bullish order block. A bearish order block is the last up candle that formed the highest high prior to the down move, and a bullish order block is the last down candle that formed the lowest low prior to the up move.
This video will help you understand exactly what are order blocks in forex. The Content written in this blog is not included in this video therefore we recommend to continue reading the blog after watching the video.
Validation of order blocks in forex?
A bullish order block in forex is validated when the high of the lowest down candle (Bearish Candle) is engulfed by a later formed candle. And A bearish order block in forex is validated when the low of the highest up candle (Bullish Candle) is engulfed by a later formed candle.
How to trade order blocks in forex
When price trades higher away from the bullish order block in forex, creating a liquidity void and then later returns to the bullish order block thus closing the previously created liquidity void as price was trading away from the bullish order block; this will be a bullish scenario, therefore, we will anticipate buy setups in the market using the bullish order block as our entry-level.
This Picture Indicates a bearish order block in forex chart.
When price trades lower away from the bearish order block in forex, creating a liquidity void and then later returns to the bearish order block. thus closing the previously created liquidity void, as price was trading away from the bearish order block; this will be a bearish scenario, and we will anticipate sell setups in the market using the bearish order block as our point o reference.
This Picture Indicates a bearish order block and a bullish order block.
We place our stop loss at the low of a bullish order block. Whilst in a bearish order block in forex, our stop loss will be at least 5 pips away from the high of the bearish order block.
Order flow
The Order Flow Trading concept simply seeks to indicate the directional bias of the market where big participants will manipulate price to go to. Resting liquidity pools will be targeted on previous highs and lows in form of stop losses or pending orders. if price collects liquidity on previous lows this means we might see the market structure being bearish.
Bearish Order Flow /Bearish Market Structure
A bearish institutional order flow means we expect price to seek sell-side liquidity. Hence, framing trading setups using bearish order blocks has a high probability. Price seeks sell-side liquidity on bearish institutional order flow meaning bullish order blocks are most likely to fail due to price collecting sell-side liquidity on previous lows. Focus on bearish order blocks when the market structure is bearish. And on bullish order blocks when the market structure is bullish
What is the fair value gap in forex?
Fair Value Gap occurs when Price leaves a specific level where there’s less trading activity seen and only has a one-directional price movement. Fair value gaps can present new trading opportunities especially when coupled with order blocks.
Liquidity Void
Liquidity voids occur when price moves sharply in one direction. This is portrayed by large candles that have little trading activity as price moves in one direction. Eventually, the price will return to close the liquidity void.
The Shaded area on the chart indicates a liquidity void.
KEY TAKEAWAYS:
Look for Daily Order Flow if it’s no clear switch to H4 and H1. The Understanding of order flow will give you directional bias of the market .weekly and monthly order flow should also be considered but mostly for higher time frame Setups if you want daily and weekly setups focus on daily order flow .but once in a month make sure you check weekly and monthly order flow because the bigger time frame will always affect what is happening in the smaller timeframe.
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Originally published at https://ghosttraders.co.za on July 16, 2022.