Choosing the right order block is a crucial aspect of trading according to ICT’s teachings. Here’s a detailed breakdown of how ICT approaches this concept:
What is an Order Block?
An order block is a price level where institutions have placed large buy or sell orders. These levels often act as support or resistance in the market.
Explanation of the Concept
Order blocks are areas on the chart where significant institutional buying or selling has occurred. These blocks are identified by looking at the price action and understanding where the market has shown a willingness to reverse or continue its trend.
Why the Concept Works
The idea behind order blocks is that institutions, which have the power to move markets, leave footprints in the form of these blocks. By identifying these areas, traders can align their trades with the institutional order flow, increasing the probability of success.
Examples from ICT’s Teachings
- Institutional Order Flow: ICT emphasizes that institutional order flow is not visible through traditional tools like volume profile analysis or level 2 data. Instead, it’s about understanding the price action and where institutions are likely to place their orders [1].
- Process Thinking: ICT stresses the importance of process thinking in trading. This involves understanding the foundations of why you are making a decision to buy, sell, or stay on the sidelines. It’s not just about identifying an order block but understanding the context around it [2].
- Nested Levels: ICT also talks about nested levels within order blocks, such as propulsion blocks. These are smaller order blocks within a larger one, providing additional confirmation for a trade [4].
Tips for Using Order Blocks
- Context Matters: Always consider the broader market context. An order block in isolation is not enough; you need to understand the overall market structure and institutional order flow [2].
- Self-Talk and Analysis: Engage in self-talk to question why the market is reacting at certain levels. This helps in understanding the underlying reasons behind the formation of an order block [8].
Caveats to Consider
- Not a Silver Bullet: Order blocks are not the be-all and end-all of trading. They are one tool among many, and relying solely on them without considering other factors can lead to poor trading decisions [8].
- Experience Required: Identifying and using order blocks effectively requires experience and practice. It’s not something that can be mastered overnight [4].
By understanding and applying these principles, you can better align your trades with institutional order flow and improve your trading outcomes.