Forex trading is a lucrative business that demands a lot of expertise and patience. It is a well-known fact that traders make the most profit when they follow the trend, and one of the most effective ways to do this is by identifying order blocks. An order block is a price level where a significant amount of trading activity has taken place, and the market has changed direction from that point. In this article, we’ll take a closer look at what an order block is and how to identify it in forex trading.
Firstly, let us understand what an order block is. An order block is a price level where a significant amount of trading activity has taken place, resulting in a change of market direction. Order blocks can be identified by looking at the price chart and observing areas where the price has consolidated before making a significant move. These areas can be seen as a cluster of candles where the price has moved in a range before breaking out in either direction.
Now let’s look at the steps to identify an order block:
Step 1: Look for a significant price move
The first step in identifying an order block is to look for a significant price move. This can be seen on the price chart as a sharp move in either direction. The move should be significant enough to indicate that there was a lot of trading activity at that point.
Step 2: Look for a consolidation period
After identifying the price move, the next step is to look for a consolidation period. This is a period where the price moves in a narrow range, indicating that traders are undecided about the direction of the market. The consolidation period can be seen as a cluster of candles on the price chart.
Step 3: Identify the high and low of the consolidation period
Once you have identified the consolidation period, the next step is to identify the high and low of the range. The high and low of the range will act as the support and resistance levels for the order block.
Step 4: Look for a breakout in either direction
The final step in identifying an order block is to look for a breakout in either direction. Once the price breaks out of the consolidation period, it is likely to continue in the direction of the breakout. This is where traders can enter a trade and make a profit.
In conclusion, identifying order blocks is an essential skill for traders who want to make consistent profits in forex trading. By following the steps outlined above, traders can identify areas of significant trading activity and use this information to make profitable trades. It is important to note that order blocks are not guaranteed to work every time, and traders should always use proper risk management techniques when trading the markets. With practice and patience, traders can master the art of identifying order blocks and use this knowledge to improve their trading results.
