In the world of trading, every element of the market hides a certain logic. For beginner traders, understanding concepts such as order block and imbalance can be the key to competent chart analysis. These concepts are related to the method of “reading the market”, which allows you to look behind the scenes of pricing and understand how large players (banks, funds) form their positions.
What is an order block?
An order block is an area on the chart where large players have placed their buy or sell orders. These zones often mark the starting points of significant market movements, as they reflect the actions of participants with large capital.
How to find it?
The order block is most often formed in areas where the price suddenly changes direction.
On the chart, this looks like the last candle (or several candles) of the opposite direction before a significant movement.
Types of order blocks:
Bullish order block (#Bullish Order Block): a buying zone that precedes a price increase.
Bearish order block (#Bearish Order Block): a selling zone that precedes a price decrease.
Arrow #1 marks a bearish candle: to the left of it is a period of price decline; then the price turns upward from the support level. From this candle, an area is drawn to the right, called the Order Block.
What is an imbalance?
Imbalance is an area on the chart where demand significantly exceeds supply (or vice versa), leading to a sharp price movement. These zones are created when large players quickly place their orders, leaving 'empty' spaces on the chart.
What does an imbalance look like?
On a candlestick chart, this is the area between:
The low of the current candle and the high of the next one.
Or between the bodies of the candles, where there was no price retest.
Why is this important?
Imbalances indicate uncompleted orders. The market tends to return to these zones to fill them, which can be an important signal for entering a trade.
How are order blocks and imbalances related?
Order blocks and imbalances often work in conjunction. When large players start placing their orders, it leads to the emergence of imbalances. The price then returns to the order block to 'absorb' these zones, allowing beginner traders to enter the market alongside large players.
Practical application for beginners
1. Determining entry and exit points
Find an order block on the chart.
Wait for the price to return to this block to enter the trade.
Pay attention to the imbalance: if it is in the order block zone, it strengthens the signal.
2. Identifying key levels
Order blocks often coincide with support and resistance levels. This allows them to be used for setting stop-losses and take-profits.
3. Trend analysis
Imbalances often form at the beginning of trends. Studying them will help determine the direction of price movement.
Example strategy using order blocks and imbalances
Step 1: Find an order block on the chart.
Suppose the price has sharply risen, leaving a bullish order block behind.
Step 2: Identify the imbalance.
Carefully examine the candles: is there an area where the price has not yet returned for a retest?
Step 3: Place the order.
Place a limit order to buy within the order block, considering the imbalance zone.
Step 4: Manage risks.
Set the stop-loss below the order block and the take-profit in the area of the next resistance level.
Tips for beginners
Study historical charts.
Review historical data to find examples of order blocks and imbalances.Combine with other tools.
Use Fibonacci levels, volume indicators, or trend lines to confirm signals.Practice on a demo account.
Before risking real money, practice the technique on a simulator.Watch the timeframe.
On lower timeframes (1M, 5M), order blocks form more frequently, but the signals are less reliable. It is recommended for beginners to start with larger intervals (1H, 4H, 1D).
Order blocks and imbalances are powerful tools that help traders understand the behavior of large players in the market. These zones serve as key markers for determining entry and exit points in trades.
It is important for beginners to remember that success in trading depends on sound analysis, patience, and discipline. By applying order blocks and imbalances, you can strengthen your knowledge and improve the accuracy of your market decisions.