How to find crypto order blocks? Crypto day trading with order blocks: The easily to understand full guide to order block crypto trading with examples.
Order blocks in trading refer to areas on the price chart where significant orders were previously filled. These areas are of interest to traders because they can act as support or resistance levels in the future. The basic premise is that large institutional orders can leave “footprints” in the market, which can then be observed and acted upon by other traders.
Let’s Start with a Summary on Crypto Order Blocks:
Identifying the Order Blocks in Crypto:
An order block can often be identified on a price chart as a consolidation or range before a significant move in price. It’s the last opposing low before an upward move or the last opposing high before a downward move.
Order Blocks by Institutional Footprints:
Large institutions, banks, or hedge funds frequently have large orders that cannot be filled in a single transaction without significantly affecting the market. To avoid this, they divide their orders into smaller blocks. When these blocks are filled, they can cause major price fluctuations.
Support and Resistance in Crypto Trading:
Once an order block has been established, traders may use it in the future as a potential location of support or resistance. If the price returns to this area, the same institutional players may be interested in intervening again, or other traders will anticipate this and act appropriately.
Trading Strategy based on Crypto Order Blocks:
Some traders use order blocks as part of their strategy. They might look to enter trades near the boundary of an order block, expecting the price to bounce off it. Alternatively, a breakout through an order block might be seen as a strong move, potentially leading to a trend continuation.
Bullish Order Block Crypto Trading
A bullish order block is a specific type of orderblock used within the context of trading, particularly within the realm of institutional order flow. It’s an area or zone on the chart that represents where buying interest (from institutional players or large traders) previously came into the market, leading to a significant upward move in price.
Here’s how to identify and understand bullish order blocks:
1. Prior Downward Move:
Before a bullish order block can form, there typically needs to be a noticeable downward move in price. This sets the stage for the potential buying interest.
2. Consolidation or Range:
The bullish order block itself is often seen as a consolidation or range that forms after this downward move. It’s essentially the “pause” before the price moves upward. This area is believed to be where large institutions or traders have accumulated their buy orders.
3. Subsequent Upward Move:
After the consolidation or range (the order block), there’s typically a significant upward move. This is seen as the manifestation of the accumulated buying orders getting filled and pushing the price up.
4. Future Support:
Once identified, a bullish order block can serve as a potential area of support in the future. The rationale is that if the price returns to this area, the same institutional players might be interested in buying again or other traders will anticipate this buying interest and act accordingly.
5. Trading the Bullish Orderblock:
Some traders will look to enter long positions (buy) when the price revisits a bullish order block, expecting it to act as support. Stop-loss orders might be placed just below the order block to manage risk.
Bearish Order Block Crypto Trading
A bearish order block, in the context of trading and particularly with respect to institutional order flow, refers to a specific area or zone on the price chart that signifies where selling interest (from large institutions or traders) previously entered the market, leading to a significant downward move in price.
Here’s how to identify and understand bearish order blocks:
1. Prior Upward Move:
Before a bearish order block can be identified, there’s usually a noticeable upward move in price. This sets the stage for potential selling interest.
2. Consolidation or Range:
The bearish order block itself often appears as a consolidation or a range that forms after the upward move. This consolidation or range is where it’s believed that large institutions or traders are distributing or accumulating their sell orders.
3. Subsequent Downward Move:
After the consolidation or range (the order block), you’ll typically observe a significant downward move in price. This move is understood as the result of the accumulated sell orders getting executed, pushing the price down.
4. Future Resistance:
Once a bearish order block has been identified, traders might view it as a potential area of resistance in the future. The logic is that if the price returns to this zone, the same institutional participants might show interest in selling again, or other traders might anticipate this selling interest and act in kind.
5. Trading the Bearish Order Block:
Traders might look to enter short positions (sell) when the price approaches or revisits a bearish order block, anticipating that it might act as resistance. To manage risk, stop-loss orders might be placed just above the order block.
The Concept of a Breaker in Crypto Order Block Trading
In the context of trading and order flow analysis, a “breaker” is a concept related to order blocks but serves a different purpose. It’s a term used in some trading circles, particularly among those who analyze institutional order flow or supply and demand in their trading approach.
Here’s a basic breakdown:
Definition:
A breaker is a bearish or bullish candle that “breaks” through an order block, leading to a significant price move in its direction. The theory is that this breaker has cleared the orders present in the order block, and it could potentially act as a future area of support or resistance.
Relation to Order Block:
If you have a bullish orderblock (an area where buyers previously showed interest), a bearish candle that moves through and “breaks” this block would be considered a “bearish breaker.” Conversely, if you have a bearish order block (an area where sellers previously showed interest), a bullish candle that breaks through this block would be considered a “bullish breaker.”
Future Role:
Once a breaker is established, it can be seen as a potential area of supply (for bearish breakers) or demand (for bullish breakers) in the future. Traders might look to sell when the price revisits a bearish breaker or buy when the price revisits a bullish breaker.
Trading Strategy:
The general idea is that the breaker has cleared the orders in the original order block. So, if price returns to this area, there might be a significant reaction again, especially if institutional players are still interested in that price zone.
Risk Management:
As always, it’s essential to combine breakers and order blocks with other forms of analysis and to use proper risk management. No single tool or concept is foolproof in trading.
Real trading example on Orderblocks Crypto
So, now you know the basics. If you want to learn more keep on reading as we will go through the following topics in more detail:
- Orderblock variations
- Identify High Probability Orderblocks
- Entry placement
- Stoploss placement
We are going to explain all those concepts with nice pictures of orderblock examles for cryptocurrencies, but it works with stocks, forex and more as well.
How to identify Orderblocks? With Orderblock Examples
Limit orders are placed in orderblocks by Market Makers and other large players. If you’ve identified these areas correctly, they’re very likely to hold. That is why, in many trading systems, the Orderblock is the single most profitable concept.
In the following we will explain to you how to indentify crypto oderblocks. But first, let’s check our the four main Orderblocks you could trade:
- Wide Wick Orderblock
- Tight Range Orderblock
- Mid Trend Pause Orderblock
- Breaker Orderblock
Wide Wick Variation Orderblock:
- Wick must be bigger than 50% of the candle.
- Wick must be near the bottom/top.
- Wick should not be too small.
In this case you want to draw an Orderblock covering the whole wick.
Tight Range Variation Orderblock:
- Price must consolidate tightly in a range.
- Consolidation should consist of at least 10 candles.
- The longer and tighter the consolidation is, the more powerful the Orderblock becomes.
In this case you want to draw an Orderblock covering most of the range.
Mid Trend Pause Variation Orderblock:
- Consolidation in a trend
- The cleaner the trend is, the better the Orderblock will hold
In this case you want to draw an Orderblock covering the whole consolidation.
Breaker Block Variation Orderblock:
- Must be a failed Orderblock
- If this Orderblock held price earlier, the chance it holds now as a breaker block increases
- Can be any of the Orderblock variations, just needs to be failed
How to identify a high probability Orderblock?
- Orderblock led to a market structure break (MSB)
- Liquidity rests before the Orderblock
- Liquidity can be either a high/low, or a fair value gap (FVG)
We recommend that you choose Orderblocks that have a high probability of meeting one of these conditions. If you can correctly identify high probability Orderblocks, you can make VERY good trades, which is even better if you use AI price predictions to find a better entry.
Place your Entry Order
There are two main ways to open a trade and set your entry:
- Entry at midpoint of the Orderblock
- Entry at the start of the Orderblock
Let’s dive into both options.
Entry at Midpoint of Orderblock
- Doubles your RR (Risk-Reward) ratio compared to the next type of entry.
- Higher chance of not getting filled.
- Works best on wide Orderblocks.
Entry at Start of Orderblock
- Entry at the beginning of the Orderblock.
- Half of the RR compared to the midpoint entry.
- Higher chance of getting filled.
- Works best on smaller Orderblocks.
Stoploss Placement for Order block Trading
- Smaller Orderblocks should have a wider stoploss, going beyond the full Orderblock.
- Wider Orderblocks should have the stoploss just below/above the Orderblock.
And that’s it for our in-depth analysis of this crypto trading topic. If you have more questions leave us a comment below.
Conclusion on Order Blocks
Order blocks in crypto trading are pretty common and can be easily spotted. Below you can find another example where you can see the orderblocks. Another usefull technical indicator for your crypto trading is the accumulation and distribution indicator (A/D). Our AI knows all this and combines the order blocks and many more technical indicators into price predictions for the next few hours.
Co-author: Xilam
