Price action trading makes use of two powerful tools for decoding institutional behavior, Order Blocks and Breaker Blocks. These are strong indicators to analyze market structure, liquidity, and planning. They may appear similar on charts, but each provides different information regarding structure, liquidity, and intent of markets.
Here, you can gain comprehensive information about Order Block vs Breaker Block. Learning the differences may enable you to anticipate possible reversals and get out of traps and trade more strategically.
What Are Order Blocks, And Their Purpose
An Order Block refers to the final bullish or bearish candle before an abrupt change, when major institutional orders were possibly placed by smart money entering but remaining unfilled orders in the market.
In a bullish scenario, this candle represents the last down candle before an upward move occurs, while for bearish traders, it signifies an imminent decline. Price can often take an explosive dive when returning to this zone due to those orders left unsettled.
Characteristics of an Order Block
- Precedes a sharp move; break of structure or price imbalance.
- When revisited, these levels often act as strong support or resistance.
- Moreover, these may serve as stops before the reverse occurs.
What Are Breaker Blocks and Their Usage
Breaker Blocks are more intricate. This pattern occurs after the price has broken a key swing high or low but fails to sustain above or below that point. Thus, it creates what is known as an unsuccessful breakout zone and is often used to trap traders before the price abruptly reverses direction.
Breaker Blocks occur when the price retraces back towards an unsuccessful breakout attempt and act as either support or resistance in its place.
Important Features of a Breaker Block
- Breaks and fails to sustain a swing high or low.
- Rearranges market structure, support becomes resistance or vice versa.
- Trigger stop hunts or false breakouts.
- Provide reversal zones during retest.
Differences between Order Block Vs Breaker Block
Here is a review of the key differences between Order Blocks and Breaker Blocks:
Formation
Order Block: It is when the last opposite-colored candle occurs before an abrupt price shift.
Bearer Block: An order block becomes invalid due to failure and is then broken.
Role/Purpose
Order Block: Indicates where institutional orders were initially submitted.
Bearer Block: Signals changes due to failed order blocks in the market structure.
Price Action
Order Block: Price should respect and react to this level.
Bearer Block: Often, it breaks, and then returns from another direction to test its boundaries again.
Support/Resistance
Order Block: Provides both support (bullish OB) and resistance (bearish OB).
Bearer Block: A broken OB may flip its role from support (bullish) to resistance (bearish), with resistance becoming support and vice versa.
Connotation
Order Block: It suggests the possibility for either reversal or continuation.
Bearer Block: It signifies a shift in market character and direction.
Complexity
Order Block: Easier to identify and interpret.
Bearer Block: Requires more understanding of OB failure and structural breaks.
Steps to be Adopted & Trading Strategies
Pairing
Make pairing Breaker Blocks with market structure, volume spikes, or liquidity zones for stronger signals.
Look Out for Traps
Breaker Blocks often highlight retail traps. Don’t chase breakouts blindly.
Let Price Find You
To take an analytical approach and avoid reacting on impulse, plan entries around these zones and wait for confirmation, e.g., rejection candles and engulfing patterns.
Learning about Order Block Vs Breaker Block Gives You a Deeper Market Insight for Spotting Institutional Moves
Learning the difference between Order Blocks and Breaker Blocks will give you a deeper insight into how institutions operate, and help position you to take advantage of them in making strategic moves against one. Neuron Markets, a trustworthy and competent broker, is always there for your help and guidance in this connection.
Reading candles doesn’t just involve reading for pleasure. This task also needs to be undertaken deliberately and purposefully so that you can know the price moves in time and make your business line according to that.
