Setup: Order Block
Lesson 36 of 39 in the course “Crypto”. Free, with animations and a quiz.
An impulse is a sharp, strong move made of several candles in a row. An Order Block (OB) is the last down candle before an impulse up. The idea is that orders from big players with lots of money were left there.
The impulse broke structure, meaning it took out the previous high. This is called BOS (break of structure). In SMC theory it is a footprint of big buyers. That cannot be proven, it is a model.
Price drifts back to the OB. We place a limit order, an order that fills only at our price, near the top edge of the zone.
Where does the stop-loss (auto exit at a loss) go? Answer: Below the OB low. Answer: below the low edge. If price drops below the OB, the zone failed and the idea is cancelled. A stop in the middle of the zone often gets hit by normal noise.
Entry inside the OB. SL below the zone. TP (profit target) at the impulse high or above. Check the rule of thumb: the target is at least twice as far as the stop (1:2).
Price bounced off the OB and reached the target. It does not always go like this, which is why the stop is a must. Cancel: a candle closes below the OB.
Check yourself
- What is an Order Block?
Correct answer: The last opposite candle before an impulse. It is the last candle against the move before the impulse. In theory, big players' orders were left there. - Where is the SL for a long from an OB?
Correct answer: Below the OB zone. If a candle closes below the zone, the OB failed. The idea is cancelled and the stop limits the loss. - What makes an OB stronger?
Correct answer: The impulse from it broke structure. BOS, the break of the previous high, shows the impulse was strong. In theory it is a footprint of big players.