Order block trading strategies can be powerful, but many traders are not successful in executing them. The issue is not that they fail to see the order blocks; the problem is figuring out how to enter best.
In our trading insights today, we dive into order block entry models, which make decision-making more straightforward and add more strength to your market edge.
We analyze four key order block entry models and give you step-by-step guides on how to refine your trading strategy.
Understanding What Are Order Blocks?
Order blocks refer to an area on a price chart within which significant institutional buying or selling happened. These areas often present before major moves in a market, making it an effective way to determine high-probability trades.
Learning to trade an order block requires an understanding of market structure, price action, and liquidity.
Let’s find out the anatomy of order blocks on the 15-minute chart.
Real-Life Scenario: How to Identify the Valid Order Block
On a 15-minute chart, we see an uptrend with a bullish structural breakout (BOS) above a key high. Such a breakout indicates a shift in market dynamics.
Locate the Order Block
- Identify the last bearish candle preceding the upward push.
- Verify that the candle sweeps the liquidity below its predecessor.
Validate the Order Block
- Check if the order block is still unindicated (not followed by subsequent wicks or candles).
- Mark the valid candle as the base for trading.
Wait for Inducement Clearance
Price needs to clear out existing liquidity levels before it reacts to the order block.
In our example, after price retracts back to the identified order block, it reverses with a bullish character change. This setup creates a high-probability opportunity to enter a long trade.
The 4 Best Order Block Entry Models
Each entry model has its own unique advantages and trade-offs.
1. Wick Entry Method
The wick entry model is a simple and strategic approach.
- How it Works: Place your entry at the wick of the valid order block candle.
- Stop Loss Placement: For sell positions, place the stop loss slightly above the upper wick of the order block.
- Applicable To: Traders looking to have entry confirmation.
Notes:
- Wider stop loss positions would lower the reward-to-risk ratio.
2. Body Entry System
The body entry system is based on accuracy.
- How it Works: Entry location at the body of a valid order block candle.
- Stop Loss Location: It should be placed near the top of the wick.
Pros:
- Better reward-to-risk.
- More likely to prevent exposure.
Notes:
- In case it hits the wick instead of the body, some trades may get missed by prices.
3. Midpoint Entry Method
This is a favorite method of entry for many traders because it balances risk versus reward.
- How it is Placed: Place your entry in the middle of the zone in which the order block sits.
- Stop Loss: Use the stop loss approximately just above the highest spot that is at the highest part of the order block.
Benefits:
- Better reward-to-risk ratio than in most other models.
- Fine entry with reduced risk.
Debate:
- Needs strict analysis for its effectiveness.
4. Inside-Body Entry Method
The inside-body entry model is both aggressive and challenging.
- How it Works: Enter directly inside the body of the valid order block.
- Stop Loss Placement: Align the stop loss with the higher wick of the order block.
Advantages:
- Tighter stop-loss placement maximizes potential rewards.
Considerations:
- Increased risk exposure due to stop loss being inside the order block.
- Demands sharp analytical skills and disciplined execution.
Key Principles for Effective Order Block Trading
- Wait for Inducement Clearance: Make sure price clears liquidity before responding to the order block.
- Watch for Character Changes: A break and close through market structure is a possible reversal.
- Verify Imbalances: Order blocks with apparent imbalances tend to have more successful trades.
- Be Patient: Wait for confirmation to enter trades.
Why These Models Work
These four entry methods take advantage of the natural dynamics of price action and liquidity. With validated order blocks, your entries are aligned with you:
- Maximize your chances of winning trades.
- Reduce unnecessary risks.
- Improve your reward-to-risk ratios.
Conclusion
Order block trading is a game-changer when done right. The wick, body, midpoint, and inside-body entry methods give you powerful structures for working with these areas.
As you refine your strategy, remember to:
- Always validate your order blocks.
- Exercise patience to avoid premature entries.
- Continuously learn from real-life chart scenarios.