Sniper Order Block Entry Trading Strategy
Please take a look at this article where it was previously discussed what stop hunting or liquidity hunting is in trading. Supply and demand equilibrium drives market movement, while stop loss and liquidity hunting generates a large number of orders enabling major participants to enter the transaction. Liquidity is the foundation of market movement.
Core Concept of Smart Money Trading System Using Order Block
Following the trades of significant institutional investors or traders is referred to as “smart money.” These individuals are frequently considered to have access to more information and resources than individual retail traders and the ability to influence market movement.
Who are Smart Money while trading?
- They can influence prices and direction because they actually have the power to change the market with the money at hand.
- They can choose the top or bottom, or they can choose against the trend.
- Basically they are the big financial institutions like banks and hedge funds etc..
How can one recognise Smart Money (SM)?
By examining an order block or supply-demand region in a chart. Supply and demand (S&D) zones, or Order Blocks, are footprints left by the market when an impulsive move occurs.
- The Spread (i.e. range of the price bar) increasing
- The clean Close (the point where the price closes on the current bar). And Consecutive directional candles close
The Volume (i.e. activity), generally volume increasing on impulse move
What is Order Block in Trading?
Order Blocks are footprints left by smart money when an impulsive move occurs in the chart. Order Block (OB) is the last opposite candle(liquidity grabs with opposite candle) before the strong impulse move that creates an imbalance in the market and breaks the market structure. Price is most likely to come back to those zones before it triggers another impulse move to continue with the trend.
What is a smart money trap in Order Block?
Every order block is not a valid order block. Then how smart money trap. Smart money only targets areas where higher Volumes or liquidity are pending and he grabs the liquidity by inducing traders to take positions in the wrong direction or location at that place.
Create panic and fear by moving against their entry and then Hit the stop Losses and grab the liquidity is where they can get the enough orders to fill their orders without effecting the market direction to much.
Think of it like this with this example:
Say big Fund Institution say wants a 1 million of Apples to buy and if he tries to buy them all at once then all fruit vendors will see that as opportunity to see that this big Fund institution cant go back empty handed and everyone will give their ask prices one greater than other. When he actually buys these apples price shoot up due to demand in Apples. To avoid this want he does is to create a small temporary reversal of prices by bringing prices down by hinting at possible price drop of Apples. Everyone will start put their bid prices lower and lower to avoid getting struck with Apples at their hand with loss. Say with this he can make a 25% of 1 million apples at bid price then big Fund institution punches orders with repeated orders as blocks say 10% at this bid prices and it still affects prices but no too much and price much return back to its bid price after a while where he punches his order again and again. This is what happens in market where a big buyer without shooting up the prices can buy orders in blocks at a price (normally a small range of price).
Why did they do this?
The main objectives of the smart money trap are as follows:
- Avoid Slippage due to big orders. Stop hunts are one of the mechanisms for Institutions to be able to carry out large transactions without “slippage.”
- Buy low(discounts) sell high (premium)
Sniper Order Block Entry Trading Strategy Step-By-Step Process
Step 1 identify Market Structure (who is in control that is buyers or sellers)
Order block trading using the fundamentals of smart money market structure in any time frame. Price changes within the boundaries of the zone of supply and demand. Price change in the following area of the supply or demand zone results from a breakdown of the structure of the demand or supply zone.
Principles of Smart Money Market Structure in Order Block Trading
How do Identify the Market Structure in any time frame?
One of the simplest ways to identify a trend is to examine the price movement on a chart. A series of lower highs and lower lows characterises a downtrend, whereas a series of higher highs and higher lows characterises an uptrend. When the price breaks support or swings low in an upswing, it may signal a trend shift to a negative market, and the market structure provides us the bias for entrance.
The price oscillates between predetermined levels of support and resistance, which are represented by 2 equal high and low prices. During this stage of the market, price is consolidating and remains in a range. If the price exits from either the top or bottom of the range, this range is broken, and this could signal the start of a new trend in either trend continuance or trend reversal. The market direction determined by the higher time frame structure indicates who is in charge, and we want to trade the market’s controlling side.
3 types of Market Structure:
- Uptrend is also known as a Bullish Market. Will buy at discount zone or demand zone
- Downtrend also known as a Bearish Market sells at a premium zone or supply zone.
- Sideways or Ranging Market. If ranging, will I scale down to a lower timeframe to find opportunities at a range high or low, and will stay out of the market in the middle of the zone?
How do Identify the Market Structure in any time frame?
Supply and demand zone or Order bock zone. 3 types of Market Structure Order bock zone.
Step 2: Finding Order Block in multiple time frames
Multiple time frame analyses are frequently used by traders to evaluate the broad market trend and identify potential trading opportunities.
To perform a multiple time frame order block analysis, you must first choose which time frames are crucial for your analysis. For instance, you may start with a higher time range, like a daily chart, to determine the overall trend. When you want to locate support and resistance levels with greater specificity, you may then switch to a smaller time period, such as a 1-hour or 30-minute chart.
If you’ve discovered order blockages on several time frames, you can use this information to guide your trading choices. For instance, a lower time frame order block at a crucial level of support would suggest that the market is likely to change course and move upward. However, a higher time frame order block at a large level of resistance may suggest that the market is more likely to move lower again.
Because of the fractal nature of the market, we can determine our bias and how it changes over time based on the market’s structure. Let’s say there is a positive trend on a higher time frame (HTF) IN CORRECTION, but a bearish trend on a lower time frame. We must decide which entrance method to use depending on both time frames, as well as whether to risk entry or confirmation entry.
Now Lets Talk of types of Entries:
Trend continuation entry or Trend reversal from higher time frame zone
Again we have 2 approaches
AGGRESSIVE where you take position without confirmation vs Confirmation Entry by taking position with confirmation entry.
Note: – IF TRADING ANY REVERSAL FROM a higher time frame then confirmation entry is safe. avoid entry in the tested order block.
Below is 1 min Order block entry where there is a inducement with a wick. Normally fake Choch is created on inducement.
Finding Order Block in multiple time frames
Finding Snipper Order Block in multiple time frames
Step 3:- Identify smart money trap in Order Block
This is done by either
- Liquidity hunting
Below is an example of one type of liquidity hunting
Identify smart money trap in Order Block
Sometimes fake order block is formed by smart money to induce traders to take an entry, then they hit their stop loss to take liquidity. here is one example.
Identify smart money trap in Order Block and then enter on Sniper Order Block Entry Trading Strategy
Step 4: Smart Money Sniper Entry in Order Block
First, decide which types of trade because depend on open trend entry technique change
- Trend continuous entry
- Trend reversal entry
- Range reversal entry
Trend Continuation- Trend Reversal Range Reversal
Supply Demand flip
First, understand Aggressive entry vs confirmation entry
Smart Money Sniper Entry in Order Block
Continuous Order Block Entry Method (aggressive entry)
Note trend continuous entry. Find an untested bearish order block in a downtrend or an untested bullish order block in an uptrend
As you can see the market is in a downtrend making a lower low and lower high. Valid bearish order blocked formed in the downtrend. Wait for any bearish entry at the bearish order block zone.
Supply Demand Flip confirmation entry model
A reverse confirmation entry method is called SD flip. It entails locating strong supply and demand zones that haven’t been tested on a price chart and watching for a price flip or change in trend to happen there, which can indicate a potential bounce or trend reversal. When this structure breaks down, it may signal a change in the mood of the market and offer possibilities for traders to enter an as-yet untested supply-demand zone.
- Supply Demand Flip (bullish reversal)
- Price created a new low (market structure bearish supply in control)
It tested the last supply zone (OB zone) but the price takes a technical bounce from the supply zone instead of actual selling, but could not create a new lower low in the downtrend.
Instead of creating a new lower low in the downtrend, it broke through the last supply zone. Demand in control leaving a demand zone behind
When the price retests the demand zone we will buy with smart money orders.
Can enter in trend continuous or as as reversal form HTF untested OB Zone.
Supply Demand Flip confirmation entry model
CHoCH is a reversal confirmation entry model.
On a price chart, it entails locating strong supply and demand zones that haven’t been tested and watching for changes in the trend that could indicate a future trend reversal. When this structure breaks down, it may signal a change in the mood of the market and offer possibilities for traders to enter an as-yet untested supply-demand zone. Two sorts of entries typically take place
- WITH INDUCEMENT
- WITHOUT INDUCEMENT
Change of Character
Price faces an untested higher time frame demand zone or untested demand zone for trend continuation entry. Then the price broke the untested supply zone instead of bouncing or reversal,
Strong move and beak of market structure (Strong demand IN downtrend) demand in control leaving a demand zone behind
TEST of Order Block. When the price retests the demand zone we will buy.
CHoCH is a reversal confirmation entry model..