What is an Order Block in Forex? – A Best Trading Strategy

Order block trading is a strategy involving placing a large order for a financial instrument, such as a currency pair, in the market. The goal of this strategy is to execute the order in a way that minimizes market impact and maximizes the chances of filling the order at the desired price.

Benefits of Order Block Trading

There are several benefits to using order block trading when executing large orders in the forex market:

1. Minimizing market impact: By breaking up the order into smaller chunks or using tactics such as iceberg orders, traders can minimize the impact on the market price of the financial instrument being traded. This can assist to lessen the likelihood of slippage., which is when the market price moves against the trader before the order is filled.
2. Maximizing chances of filling the order: By using tactics such as dark pools or hidden orders, traders can increase the chances of filling the order at the desired price. These tactics allow traders to execute large orders without other market participants being aware of the trade, reducing the chances of the market price moving against the trader.
3. Greater control over execution: Order block trading allows traders to have greater control over the execution of their orders. By breaking up the order into smaller chunks or using tactics such as iceberg orders, traders can more closely monitor the market and adjust their strategy as needed.

Techniques for Order Block Trading

There are several techniques that traders can use when executing order blocks in the forex market:

1. Breaking up the order into smaller blocks: One way to execute an order block is to break it up into smaller chunks and send them to the market at different times. This can help to reduce the impact on the market price of the financial instrument being traded.
2. Using iceberg orders: An iceberg order is an order that involves hiding a portion of the order from the market. The visible part of the order, called the “tip,” is small enough to not significantly impact the market price. The rest of the order, the “iceberg,” is then slowly released into the market over time.
3. Using dark pools: Dark pools are private exchanges where large orders can be executed without the rest of the market being aware of the trade. This can help to minimize market impact and increase the chances of filling the order at the desired price.
4. Using hidden orders: Hidden orders are orders that are placed in the market but not visible to other traders. This can also help to minimize market impact and increase the chances of filling the order at the desired price.

Pin Bar and Order Block

Trading Strategy

The pin bar and order block trading strategy involves using pin bar candlestick patterns in combination with order block techniques to execute trades in the forex market. A pin bar is a candlestick pattern that is characterized by a long wick and a small body, and is often used as a reversal signal.

To use this strategy, traders first identify a pin bar pattern on a chart and then use order block techniques such as iceberg orders or hidden orders to execute trades based on the direction of the pin bar.

Open Buy Trade

To open a buy trade using the pin bar and order block strategy, traders should follow these steps:

1. Identify a bullish pin bar pattern on a chart.
2. Use order block techniques such as iceberg orders or hidden orders to enter a buy trade at the desired price.
3. Set a stop-loss order at a price level below the low of the pin bar.
4. Set a take-profit order at a price level above the high of the pin bar.

Open Sell Trade

To open a sell trade using the pin bar and order block strategy, traders should follow these steps:

1. Identify a bearish pin bar pattern on a chart.
2. Use order block techniques such as iceberg orders or hidden orders to enter a sell trade at the desired price.
3. Set a stop-loss order at a price level above the high of the pin bar.
4. Set a take-profit order at a price level below the pin bar’s low.

Trend Line and Order Block

Trading Strategy

The trend line and order block trading strategy involves using trend lines in combination with order block techniques to execute trades in the forex market. A trend line is a straight line that is drawn on a chart to connect two or more price points and is used to identify the direction of a trend.

To use this strategy, traders first identify a trend line on a chart and then use order block techniques such as iceberg orders or hidden orders to execute trades based on the direction of the trend.

Open Buy Trade

To open a buy trade using the trend line and order block strategy, traders should follow these steps:

1. Identify an upward trend on a chart and draw a trend line connecting the low points of the trend.
2. Use order block techniques such as iceberg orders or hidden orders to enter a buy trade at the desired price when the market approaches the trend line from below.
3. Set a stop-loss order at a price level below the trend line.
4. Set a take-profit order at a price level above the trend line.

Open Sell Trade

To open a sell trade using the trend line and order block strategy, traders should follow these steps:

1. Identify a downward trend on a chart and draw a trend line connecting the high points of the trend.
2. Use order block techniques such as iceberg orders or hidden orders to enter a sell trade at the desired price when the market approaches the trend line from above.
3. Set a stop-loss order at a price level above the trend line.
4. Set a take-profit order at a price level below the trend line.

Wedge Pattern and Order Block

Trading Strategy

The wedge pattern and order block trading strategy involves using wedge patterns in combination with order block techniques to execute trades in the forex market. A wedge pattern chart is characterized by a contracting range and sloping trend lines that converge toward each other. Wedge patterns can be either bullish or bearish, depending on the direction of the trend lines.

To use this strategy, traders first identify a wedge pattern on a chart and then use order block techniques such as iceberg orders or hidden orders to execute trades based on the direction of the pattern.

Open Buy Trade

To open a buy trade using the wedge pattern and order block strategy, traders should follow these steps:

1. Identify a bullish wedge pattern on a chart.
2. Use order block techniques such as iceberg orders or hidden orders to enter a buy trade at the desired price when the market breaks out of the wedge pattern to the upside.
3. Set a stop-loss order at a price level below the low of the wedge pattern.
4. Set a take-profit order at a price level above the high of the wedge pattern.

Open Sell Trade

To open a sell trade using the wedge pattern and order block strategy, traders should follow these steps:

1. Identify a bearish wedge pattern on a chart.
2. Use order block techniques such as iceberg orders or hidden orders to enter a sell trade at the desired price when the market breaks out of the wedge pattern to the downside.
3. Set a stop-loss order at a price level above the high of the wedge pattern.
4. Set a take-profit order at a price level below the low of the wedge pattern.

Risks of Order Block Trading

While order block trading can offer several benefits, there are also some risks to consider:

1. Market risk: As with any trading strategy, there is always the risk that the market will move against the trader. While techniques such as iceberg orders and hidden orders can help to minimize market impact, they cannot completely eliminate the risk of slippage.
2. Execution risk: There is also the risk that the order will not be filled at the desired price, even if the trader is using tactics such as iceberg orders or hidden orders. This can occur if the market moves against the trader or if there is insufficient liquidity in the market to fill the order.
3. Fees and commissions: Order block trading can be more expensive than other trading strategies due to the increased fees and commissions associated with executing large orders. This can be a significant consideration for traders with limited capital.

Tips for Successful Order Block Trading

Here are some tips to help traders successfully execute order blocks in the forex market:

1. Use a reputable broker: It is important to use a reputable broker that has a track record of executing large orders efficiently and at a reasonable cost.
2. Monitor the market closely: Closely monitor the market and be prepared to adjust your strategy if necessary. This can help to minimize the risk of slippage and maximize the chances of filling the order at the desired price.
3. Consider using a trading algorithm: A trading algorithm can help to automate the process of executing order blocks, reducing the risk of human error and allowing traders to focus on other aspects of their trading strategy.
4. Use risk management techniques: As with any trading strategy, it is important to use risk management techniques such as stop-loss orders to mitigate the risk of significant losses.

Conclusion

Order block trading is a useful strategy for traders looking to execute large orders in the forex market while minimizing market impact and maximizing the chances of filling the order at the desired price. By using techniques such as breaking up the order into smaller blocks, using iceberg orders, or utilizing dark pools or hidden orders, traders can more closely control the execution of their orders. However, it is important to keep in mind the risks of order block trading, including market risk, execution risk, and the cost of fees and commissions. By following these tips and using risk management techniques, traders can increase their chances of success with order block trading.

In addition to traditional order block techniques, traders can also use chart patterns and technical analysis to identify trading opportunities in the forex market. The pin bar and order block, trend line and order block, and wedge pattern and order block strategies are just a few examples of how traders can combine order block techniques with technical analysis to execute trades in the forex market. As with any trading strategy, it is important to carefully test and evaluate these techniques before using them in live trading.