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ICT Breaker Block Simplified - best breaker block trading strategy — Transcript

by Smart Risk · 2,007 words · 329 segments · language en · Watch on YouTube

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0:00Hey traders and welcome to another
0:02episode of Smart Risk. Today in this
0:04video, we will dive deep into breaker
0:06blocks and show you how to use them to
0:08get one step ahead of the market.
0:11Mastering this concept will provide you
0:13with insights into identifying high
0:15probability trading setups on the price
0:17chart and help you avoid missing perfect
0:19trades. We will also explain the various
0:21types of candlestick breaker blocks,
0:24trading strategies, and price actions
0:26associated with breaker blocks that you
0:27might encounter in the market.
0:29Additionally, we'll break down the key
0:31criteria and rules for identifying
0:33highquality breaker blocks and trading
0:35setups. So, traders, if that's something
0:38you're interested in, please give this
0:39video a thumbs up to show your support
0:42and subscribe to our channel if you are
0:43new. See you after intro.
0:47[Music]
0:53[Music]
0:57Welcome back traders. So let's get
0:59started starting with the basics. What
1:02is the definition of a breaker block? A
1:05breaker block is a previously failed
1:07order block that becomes a key supply or
1:09demand zone on the price chart.
1:14Generally this occurs when a previous
1:16order block is broken in the opposite
1:17direction causing it to switch its
1:19characteristic from supply to demand or
1:21vice versa. Essentially, a breaker block
1:25is used to mitigate positions and serves
1:27as an area where positions are added.
1:30But there is a pro tip to consider.
1:33Every time the price breaks through a
1:34key demand or supply zone without
1:36respecting it, that area switches its
1:38characteristic. A supply zone becomes a
1:41demand zone and a demand zone becomes a
1:43supply zone. The same rules apply to
1:46order blocks.
1:48The market might ignore the supply and
1:50demand of an order block for various
1:52reasons. including shifts in market
1:54structure, being overvalued or oversold,
1:57tapping into higher time frame key
1:59areas, the release of important economic
2:01news or other fundamental factors. When
2:04a valid demand order block fails to
2:06reject the price and price break through
2:07it to the downside, it becomes a supply
2:09level which is called a breaker block.
2:12In this scenario, it is expected that
2:14the price will reject this area and then
2:16push to the downside.
2:19Now let's see what is the psychology
2:21behind the breaker block and how it
2:23works.
2:25Let's say we have a bullish break of
2:26structure above the last high with
2:28inefficiency. This move provides a valid
2:31order block associated with the recent
2:32break of structure offering an
2:34opportunity to go long. However, if the
2:37price makes a market structure shift by
2:39pushing and closing below the most
2:41recent low point, the directional bias
2:43changes to bearish. As a result, our
2:46demand level turns into a supply level
2:48after the price breaks the order block
2:50to the downside.
2:52The psychology behind the breaker block
2:54is that traders who went long from the
2:56order block after the recent market
2:58structure shift, these traders are now
3:00trapped and expect the price to return
3:02to their break even spot. So, they can
3:04close their long positions without a
3:06loss. Closing a significant amount of
3:09buy orders in this specific zone will
3:11fill numerous selling orders in a short
3:13period, creating massive selling
3:15momentum in the market.
3:17Additionally, retail traders identify
3:20the previous market structure shift as a
3:22trend line breakout. They eagerly wait
3:25for the price to come back up to confirm
3:27their trading setup, providing them with
3:29an opportunity to go short from the
3:31retest area, which is the breaker block.
3:35Furthermore, traders will go short at
3:37the breaker block because they view this
3:39area as a key supply zone.
3:42These actions make the breaker block a
3:44well-defined supply area, providing a
3:47high probability for short positions and
3:49resulting in price reversals from that
3:51area. However, another key point to
3:54consider is that breaker blocks are
3:56usually most effective when the price is
3:58moving very bullish or bearish with
4:00minimal pullbacks and when the price is
4:02not respecting the premium or discount
4:04supply and demand areas along its path.
4:08Now, let's proceed to the next topic and
4:10see how to identify breaker blocks from
4:12the candlestick perspective.
4:16In a bullish scenario, a candlestick
4:19based breaker block is an area that
4:21failed to reject the price. This refers
4:24to the last selling candle that formed
4:26before a sharp upside move. This candle
4:29typically breaks below or sweeps the
4:31liquidity of the lowest point of the
4:32previous candle. For example, in this
4:35bullish diagram, we identify this red
4:37candle as a breaker block. This candle
4:40represents the last bearish candle
4:42before the price initiates a drastic
4:44upward movement, having taken out the
4:46lowest point of the previous bearish
4:48candle and effectively swept its
4:50liquidity.
4:52In a parallel scenario occurring in the
4:54second candle series, it refers to the
4:56last bullish weak candle that formed
4:58just before a sharp upside move which
5:01breaks below or effectively sweeps the
5:04liquidity of the lowest point of the
5:05previous candle. These concepts are also
5:08applicable to bearish markets. It's
5:10important to note that these principles
5:12can be applied across various time
5:14frames and any price action-based chart.
5:17Please make sure to watch the video
5:19attentively until the end. In the second
5:21section, we will explore the criteria
5:24and rules for identifying valid breaker
5:26blocks and examine scenarios that make a
5:28breaker block an ideal entry area for
5:30executing winning trades.
5:32To identify valid breaker blocks and use
5:34them to our advantage, we need to
5:36consider several criteria and rules.
5:39Clearing buyside and sellside liquidity.
5:42The first criteria that need to be
5:43considered in identifying valid breaker
5:45blocks is that the price must clear an
5:47area of buyside or sellside liquidity
5:49before forming a market structure shift.
5:52Here's a pro tip to consider. When
5:54identifying a valid order block, the
5:56price must break and close above or
5:58below the recent swing high or low to
6:00form a valid break of structure in
6:02conjunction with the order block.
6:04However, this requirement is not
6:05obligatory for a breaker block. There is
6:08no need for the price to close with a
6:09candle body above or below the recent
6:11swing low when identifying a breaker
6:13block.
6:15The second rule is that in a bullish
6:17scenario, the price's sharp movement
6:19must form a higher high and in a bearish
6:21scenario, it must form a lower low. This
6:24ensures that the price pushes
6:26significantly higher or lower over
6:28several candles to filter out single
6:30candle pumps or dumps in the market
6:32before forming a market structure shift.
6:34This precaution is necessary because we
6:36cannot rely on manipulated moves or
6:38moves driven by significant excitement.
6:42The third rule emphasizes that once
6:44buyside or sellside liquidity has been
6:47taken out, the price must start to
6:48reverse its movements.
6:51The fourth rule states that a breaker
6:53block is only considered valid if the
6:55price breaks and closes below or above
6:57the breaker block with the body of the
6:59candle.
7:00A penetration with just a shadow or wick
7:03is not acceptable.
7:06Rule number five, breaker blocks are
7:08considered for one-time use. This means
7:11we focus on the trading opportunity when
7:13the price first enters a breaker block.
7:16Once a breaker block has been mitigated,
7:18we do not consider it as an area of
7:20interest for future trading.
7:22To integrate all the criteria and rules
7:25for identifying valid breaker blocks,
7:27let's examine a real chart example.
7:31We're looking at the Euro Dollar 15inut
7:33chart. Initially, there's a swing high
7:36followed by a swing low. Then we see a
7:39strong upward push that breaks and
7:40closes above the previous swing high.
7:43This forms a valid order block
7:45indicating strong demand for long
7:47positions.
7:49Now that the buyside liquidity is taken,
7:51the market suddenly reverses direction
7:53after confirming a new higher high,
7:55pushing downward.
7:57Eventually, it breaks and closes below
8:00the low of the last bearish candle,
8:02marking a shift in market structure.
8:05This zone now qualifies as a valid
8:07bearish breaker block, signaling that
8:09buyers in this area have been stopped
8:11out. Since we've seen a bearish market
8:13structure shift and an area of demand
8:15that is now turned into supply, we
8:18anticipate the price to face rejection
8:20from this breaker block and continue its
8:22downward movement.
8:25As seen, the price initially moves
8:27upward and pauses temporarily within the
8:29breaker area. After accumulating more
8:32buy orders, it finally gains momentum
8:34and pushes downward.
8:37Moving forward, the first highquality
8:40type of breaker block that offers a high
8:41probability of success occurs when it
8:44forms right after a liquidity sweep
8:45pattern in the market. As discussed
8:48earlier, a liquidity sweep pattern is
8:50characterized by a single candle that
8:52clears out liquidity above or below the
8:54previous high or low. This pattern
8:57typically precedes a swift and
8:58significant market reversal.
9:01In this scenario, we anticipate an
9:03immediate reversal in price direction
9:04following a liquidity sweep. After the
9:07sweep, we expect the price to quickly
9:09return to the range of the most recent
9:11swing low or swing high. We identify a
9:14liquidity sweep by a candle with a long
9:16wick or body, followed by a sharp and
9:18immediate price movement that results in
9:20a market structure shift.
9:24Upon closer look, we see that the price
9:26has formed a valid unmititigated breaker
9:28block precisely at the location of this
9:30last buying candle. This candle was
9:33formed just before a sharp downward
9:34movement.
9:36This breaker block fulfills all the
9:38criteria of an ideal setup. The price
9:40cleared out sellside liquidity and after
9:42establishing a new lower low,
9:44immediately reversed its direction and
9:46created a market structure shift by
9:48breaking and closing above it. Here we
9:52have identified a valid breaker block
9:53located above this fair value gap.
9:56Placing our entry at the fair value
9:58might cause us to miss this ideal buying
10:00opportunity as the price is unlikely to
10:02return to the fair value gap once it
10:04moves away from it.
10:07In this scenario, the price is expected
10:09to react from the breaker block rather
10:11than the fair value gap. Therefore, the
10:13entry should be placed at the highest
10:15point of the breaker block with a stop
10:17loss a few pips below the fair value
10:19gap.
10:20When executing a trade, there are two
10:23options for placing an entry. One
10:25approach is to opt for a single time
10:26frame entry on the current time frame.
10:29Alternatively, a more conservative
10:31strategy involves seeking additional
10:33confirmation. This can include waiting
10:35for multiple reversal patterns such as a
10:37change of character observed in lower
10:39time frames which forms inside the
10:41breaker block area identified on the
10:43higher time frame.
10:46The second highquality setup occurs when
10:48a breaker block coincides with a
10:50significant liquidity void in the
10:51market.
10:53This typically happens when the price
10:55breaks the breaker block with
10:56inefficiency, leaving the breaker block
10:58area inside a gap. This scenario
11:01presents an excellent opportunity to
11:03execute buy or sell positions with a
11:06high probability of success.
11:09Another high probability setup occurs
11:11when a breaker block is paired with an
11:13order block. In this scenario, an order
11:16block forms near the breaker block area.
11:19These breaker blocks are particularly
11:20powerful because the price is likely to
11:23respect them. They represent areas where
11:25numerous orders were previously executed
11:27in the market and there may still be
11:29orders held in that area. Therefore,
11:32there is a high probability that the
11:34price will return to retest that area.
11:37In this scenario, we have identified a
11:39valid breaker block paired with an order
11:41block. We set our entry at the highest
11:43point of the breaker block and patiently
11:45wait for the price to trigger our
11:46executed trade.
11:49That's it traders. Thank you for
11:50watching this video. I hope you found it
11:52informative and useful. Don't forget to
11:54hit the subscribe button and turn on
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11:58latest videos. We value your feedback
12:00and suggestions. So, please leave your
12:02comments below and let us know what
12:03topics you'd like us to cover in our
12:05future videos. We appreciate your
12:07support and look forward to seeing you
12:08in the next

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