Market Structure and Order Blocks
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Objectives:
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Explain market structure: highs, lows, liquidity.
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Deep dive into order blocks and their significance in SMC
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Slide 1: Market Structure Basics (Trends, Highs, Lows)
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Title: Understanding Market Structure in Forex: Trends, Highs, and Lows1.
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What is Market Structure?
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Market structure in Forex refers to the patterns of price movement based on trends.
Key concepts include trends, highs, lows, and breaks of structure.
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1. Trends in Forex:
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Uptrend: Higher Highs (HH) and Higher Lows (HL). Buyers are in control.
Example: EUR/USD moves from 1.1000 to 1.1050 (HH), retraces to 1.1025 (HL), and then rises to 1.1100 (new HH).
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Downtrend: Lower Highs (LH) and Lower Lows (LL). Sellers dominate.
Example: GBP/USD falls from 1.3000 to 1.2900 (LL), retraces to 1.2950 (LH), and then drops to 1.2800.
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Sideways: Lower Highs (LH) and Lower Lows (LL). Sellers dominate.
Example: GBP/USD falls from 1.3000 to 1.2900 (LL), retraces to 1.2950 (LH), and then drops to 1.2800.
Interactive Question:
If you see EUR/USD forming higher highs and higher lows, what would you expect the priceaction to do next?
Market Structure and Order Blocks
​​
Objectives:
​
-
Explain market structure: highs, lows, liquidity.
-
Deep dive into order blocks and their significance in SMC
​
Slide 1: Market Structure Basics (Trends, Highs, Lows)
​
Title: Understanding Market Structure in Forex: Trends, Highs, and Lows1.
​​
What is Market Structure?
Market structure in Forex refers to the patterns of price movement based on trends. Key concepts include trends, highs, lows, and breaks of structure.
Trends in Forex:
Uptrend: Higher Highs (HH) and Higher Lows (HL). Buyers are in control.
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Example: EUR/USD moves from 1.1000 to 1.1050 (HH), retraces to 1.1025 (HL), and then rises to 1.1100 (new HH).
Downtrend: Lower Highs (LH) and Lower Lows (LL). Sellers dominate.
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Example: GBP/USD falls from 1.3000 to 1.2900 (LL), retraces to 1.2950 (LH), and then drops to 1.2800.
Sideways: Lower Highs (LH) and Lower Lows (LL). Sellers dominate.
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Example: GBP/USD falls from 1.3000 to 1.2900 (LL), retraces to 1.2950 (LH), and then drops to 1.2800.
Interactive Question:
If you see EUR/USD forming higher highs and higher lows, what would you expect the price action to do next?
Slide 2: Order Blocks – Definition and Types
Title: Forex Order Blocks: The Key to Smart Money Activity1.
What are Order Blocks in Forex?
Order Blocks are areas where institutional traders (banks, hedge funds) place large buy or sell orders.
These often precede significant price moves in the market.
Why is it important?
Institutions leave footprints in the market. Identifying these footprints (order blocks) can help retail traders align with the big players.
Types of Order Blocks:
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Bullish Order Block: An area where large buy orders are placed before a strong upward move.
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Example: USD/JPY drops to 105.50, consolidates, and then surges to 106.50. The consolidation at 105.50 is the bullish order block.
Bearish Order Block: An area where institutional sell orders are placed before a sharp fall.
Example: GBP/USD rises to 1.3200, consolidates for a few days, and then drops to 1.3100.The consolidation at 1.3200 is the bearish order block.
Order Blocks as Key Areas for Trade Entries:
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Retail traders use order blocks to identify points of reversal or continuation.
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Institutions may revisit these blocks (mitigation) before continuing the trend.
Interactive Question:
Let’s say EUR/USD consolidates around 1.1200 before a sharp move up. What do you think thatconsolidation represents in terms of order flow?
Slide 3: How to Identify Order Blocks in Forex
Title: Steps to Identify Forex Order Blocks and Use Them for Trading.
Step 2: Wait for the Break of Structure (BOS)
A break of structure confirms that price is ready to move significantly.
Example: EUR/USD breaks through a previous high at 1.1200 after consolidating. This break signals that the consolidation was an order block.
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Step 3: Look for Price Mitigation (Return to the Order Block)
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After breaking out, price often retraces back to the order block to mitigate institutional orders before continuing.
Example: USD/JPY breaks out from 105.50 to 106.50 but then pulls back to 105.80 before continuing its rise. This pullback represents the market’s return to the order block.
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Step 4: Enter Trades Near the Order Block
Traders can place entries when price revisits the order block (mitigation phase).
Example: If EUR/USD pulls back to 1.1200 after breaking higher, it signals a potential entry for continuation in the uptrend.
Interactive Question:
If you notice price returning to a consolidation area after a breakout in GBP/USD, would you consider it a buying or selling opportunity? Why?
Conclusion:
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These slides provide a comprehensive look at how market structure, order blocks, and institutional trading work together in the Forex market. Each concept builds on the next, helping traders understand price movement in a systematic way. After each slide:
Oral Interaction Tip: Ask students to apply these principles to real-world Forex pairs they are trading or analyzing.
Slide 1: “How would you analyze USD/JPY if it formed higher lows?”
Slide 2: “Where do you think large institutions might be placing their orders in EUR/USD?”
Slide 3: “If GBP/USD retraces to an order block, would you enter the trade? Why?
Example 1: Bullish and Bearish Order Blocks on Live Charts
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To give a clear picture, let's look at examples of bullish and bearish order blocks using live Forex charts. Imagine we're analyzing the EUR/USD chart, focusing on real-time price action.
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Bullish Order Block Example
Spotting the Bullish Order Block:
We observe a sharp decline in EUR/USD from 1.1050 to 1.1000, followed by a period of consolidation around the 1.1000 area.
This consolidation shows that the market is undecided, and institutions may be accumulating buy orders.
Break of Structure (BOS):
After consolidation, the price suddenly breaks upwards to 1.1050. This signals that a bullish order block was created around the 1.1000 zone.
Mitigation Phase:
After the breakout, price retraces to 1.1000 (the order block), confirming the area as a bullish order block.
Trade Example:
You could place a buy order when price revisits the order block, anticipating a continuation of the uptrend.
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Entry: At 1.1000 (when price revisits the order block).
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Stop-loss: Below the order block (around 1.0980).
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Take profit: Targeting the previous high at 1.1100.
Interactive Question:
If EUR/USD pulls back to the order block and shows signs of bullish momentum, where would youplace your stop-loss and why?
Bearish Order Block Example
Spotting the Bearish Order Block:
Price rallies from 1.1150 to 1.1200 on the EUR/USD chart but then consolidates between 1.1200and 1.1180.
This range indicates that institutions may be placing large sell orders at these levels.
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Break of Structure (BOS):
Price breaks down below 1.1180, signaling a shift in market sentiment. This confirms that abearish order block was formed near 1.1200.
Mitigation Phase:
After the breakdown, price revisits the 1.1200 zone, tapping into the bearish order block before continuing the downtrend.
Trade Example:
A trader could place a sell order when price revisits the bearish order block at 1.1200, expecting a further decline.
Entry: At 1.1200 when price returns to the bearish order block.
Stop-loss: Above the order block (around 1.1220).
Take profit: Targeting a previous low at 1.1150 or beyond.
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Interactive Question:
If EUR/USD revisits the 1.1200 area after a sharp decline, what signs would you look for to confirm thatthe order block will hold?
Example 2: Analyzing a Trade Based on an Order Block on EUR/USD
Now let’s break down a complete trade using a bullish order block on the EUR/USD pair. We’ll walkthrough this trade step by step, applying the concepts of order blocks and market structure.
Market Structure Analysis:
EUR/USD has been in a downtrend, making lower highs and lower lows. The market recently formed a low at 1.0900, followed by a period of consolidation around this level.
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Identifying the Bullish Order Block:
After testing 1.0900, price consolidates between 1.0900 and 1.0925. This consolidation suggests institutional buying in this zone.
A breakout occurs above 1.0925, creating a bullish order block around 1.0900.
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Mitigation and Entry:
After the breakout to 1.0940, price retraces to the 1.0900 order block. This is where you would prepare to enter the trade, waiting for signs of bullish momentum at the order block.
Confirmation of the Trade:
You see a bullish candle forming off the order block zone, confirming that buyers are defending the level.
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Entry: At 1.0910, when price shows bullish price action at the order block.
Stop-loss: Below the order block, at 1.0885, to account for possible liquidity grabs.
Take Profit: Targeting the recent high of 1.0960.
Monitoring the Trade:
As price rises back towards 1.0960, the market continues to make higher highs, confirming the strength of the bullish order block.
Exit and Reflection:
You take profit when price reaches 1.0960, having successfully traded the bounce off the order block.
Interactive Discussion:
Entry Point: "If price retests the 1.0900 zone and bounces off, how confident are you that the order block will hold, and what would you look for in the price action?
Stop-Loss Placement: "Why is it important to place your stop-loss just below the order block? Whatcould happen if the price briefly dips into the zone before rising?
Take Profit: "At what point would you decide to secure your profit? Would you exit all at once, or trailyour stop to capture more potential gains?"
Bringing It All Together:
By studying these real-time examples:
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Bullish order blocks allow us to enter buy trades in anticipation of price continuing higher.
Bearish order blocks give opportunities for sell trades, especially after a rally.
Using market structure, we can confirm when order blocks are likely to hold by waiting for breaks of structure and mitigation.
These examples should provide a clear framework for identifying and trading around order blocks in Forex. By asking yourself the interactive questions along the way, you'll reinforce your understanding of how to spot and trade these zones effectively.
Time Breakdown:
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Market Structure Overview (20 mins)
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Order Blocks Introduction (30 mins)
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Interactive Task (40 mins): Identifying order blocks on various charts.