In the world of technical analysis, 'Order Blocks' are powerful tools used by professional traders to predict price movements, especially in markets like forex and stocks. These areas represent critical price levels where large buy or sell orders from institutions gather. So how can you identify and exploit them?
### 🔍 The Four Basic Types of Order Blocks
Order blocks are divided into two main types: Demand Zones and Supply Zones, each with two common patterns:
#### 📊 1. Demand Zones
These are areas where price is expected to rise due to a gathering of buy orders.
✅ A. Rally-Base-Rally
- The price begins with a strong rise (large green candle).
- Then enters a consolidation phase (base - small oscillating candles).
- It then starts a new rise.
- 📌 Entry Area: The base area, where a return to buy is expected.
✅ B. Drop-Base-Rally
- The price starts with a drop (red candle).
- Then a sideways range (base) is formed where selling is absorbed.
- The price then reverses upward strongly.
- 📌 Entry Area: The base area, as it is a reversal point from drop to rise.
#### 📉 2. Supply Zones
These are areas where price is expected to fall due to a gathering of sell orders.
✅ A. Drop-Base-Drop
- The price begins with a sharp drop (large red candle).
- Then a consolidation range (base) is formed.
- It then resumes dropping sharply.
- 📌 Entry Area: The base area, where price may return to sell.
✅ B. Rally-Base-Drop
- The price starts with a rise (green candle).
- Then enters a consolidation phase (base).
- It then reverses downward strongly.
- 📌 Entry Area: The base area, as it is a reversal point from rise to drop.
### 💡 How to Benefit from These Patterns?
- Determine entry points: Wait for the price to return to the demand or supply area before making a buying or selling decision.
- Risk Management: Use a stop loss outside the block area to avoid large losses.
- Confirmation with signals: Look for confirmations such as reversal candlestick patterns or breakouts of moving averages.
### 🚀 In Conclusion
Understanding order blocks enables you to trade smarter, as you identify areas where 'smart money' moves. Try applying these patterns to historical charts to see their effectiveness for yourself!
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