Hey guys, and welcome to another episode.

In this video we're going to talk about the breaker blocks and how you can use this
concept
to improve your chart analysis.
We will explain what a breaker block is, the psychology behind them, and why they
work.
Also, how to identify and trade them.
So guys, if this is something that interests you, please hit the like button to
show your
support and subscribe if you're new.
See you guys on the other side.
Welcome back guys.
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Now, what is a breaker block?
A breaker block is a failed order block that turns into another supplier demand
area on
the chart.
From basic price action, we know that whenever the price breaks through a
resistance level,
it becomes support due to behavior of market participants.
Similarly, whenever the price breaks through a support level, it becomes resistance
when
market taps into that area again.
The same concept applies to the order blocks as well.
The market could ignore the order blocks supply and demand for many reasons,
including a shift
in market structure, being overvalued or oversold, tapping into higher timeframe
key levels
and more.
When a valid demand order block fails to reject the price and the price breaks
through, it
becomes a supply level.
We call it a breaker block, expecting that the market will reject this area.
So right here, this is what a bearish scenario might look like.
We have a break of structure above this higher high with inefficiency.
So this move creates a valid order block zone that can provide us with an
opportunity to
go long.
However, the market makes a change of character caused by this aggressive move
breaking below
the previous low.
As a result, the directional bias has changed to bearish and our demand level will
turn
into supply after this break occurred.
The psychology behind the breaker blocks is that the traders who got long in the
order
block are now trapped after the bearish market structure shift.
So they would want to wait for price to get back to their break even spot where
they can
close their longs for no loss.
Also, traders will go short here since they see this area as a key area of supply.
The outcome of this double action is what makes the price reverse from this area.
So one of the key points here is that a breaker block forms when we have a run of
liquidity
before a market structure shift.
The same goes for a bullish scenario.
We want to see a liquidity run below the swing low before a market structure shift
higher.
Then we mark the candles that created inefficiency and extend it in time, which is
going to be
our breaker block, and we expect the price to reject that area.
Here on the euro dollar 15 minute chart, we had a strong bullish move that created
inefficiency
and broke market structure.
As a result, we have a valid order block, which is a great demand level to go long.
However the market suddenly changes direction and breaks below this demand level
with large
candles.
This change in direction could be due to the price tapping into a higher time frame
resistance
level as you can see on the one hour time frame.
But on the 15 minute chart, we see this move as a liquidity grab above the previous
highs.
We now have a bearish market structure shift, and the area of demand has now turned
into
supply.
Therefore, we expect the price to be rejected from this breaker block and continue
to move
downwards.
Here on the USD CAD 30 minutes time frame, we have identified an order block
creating
inefficiency and a break of structure.
However, the market breaks this demand area, showing a bearish market structure
shift.
As a result, the demand turns into supply, and if the market taps into this area,
it
will provide us with a potential short opportunity.
Now let's discuss some of the key factors that you need to consider while trading
breaker
blocks.
First, if you have enjoyed this video so far, don't forget to smash the like button
and
also comment below and tell us what topics you want us to cover in future videos.
Let's continue with the key factors.
Number 1.
Market Structure You need to identify the current market structure
before looking for breaker blocks.
Market structure includes defining market direction, supply and demand areas,
higher time frame
key levels, liquidity areas, and amount of the space we have in front of the price.
Number 2.
Validity Make sure the breaker block you identify is valid.
Breaker blocks are created by a run of liquidity before the market structure shift.
Look for a sharp move with fair value gaps between the wicks that creates
inefficiency.
Number 3.
Confirmation Wait for confirmation before entering a trade.
Contraction can be in the form of many price action signals.
Here, shrinking candles show that the price is losing momentum while approaching to
the
breaker block.
Then we have a long wick candlestick strongly rejecting the area.
Following we have a change of character, confirming the direction change, and
signaling a possible
reversal.
By keeping these factors in mind, you can effectively trade breaker blocks and
increase
your chances of success.
Look with other trading concepts, breaker blocks should be used in combination with
other forms of technical analysis to make well-informed trading decisions.
For example, here on the New Zealand dollar one hour time frame, the market made a
bearish
change of character by breaking below this swing low.
We have this bullish order block turning into supply now, and also this move has
created
another bearish order block.
So either of these supply levels has the potential to reverse the price and make it
push downwards.
But a more conservative way to enter the market would have been to trade the order
block and
place our stop above it.
Remember that as a trader, our job is not to predict the future but to prepare
ourselves
for different scenarios that might happen.
Now that you understand the basics of the breaker blocks concept, you can proceed
with
backtesting it on historical data to identify which currency pairs work best with
this setup.
If it proves to be helpful for your overall analysis, you can add it to your
trading strategy.
Backtesting is an essential part of validating a trading setup, but unfortunately,
it can
be time consuming.
That is why we recommend using trader edge to backtest and keep track of all your
trades.
Let me demonstrate how it works.
Let's suppose we want to backtest crossover trading setup on the euro dollar in one
hour
time frame.
We will first set up the chart on trading view and adjust it.
Then we will open trader edges back tester and arrange it next to the chart.
Here we will input our starting balance and risk per trade, which we've set to 2%.
You can change this to any value you prefer, whether in dollars or percentages, for
each
individual trade.
Once we're done with the backtesting, trader edge will provide us with a detailed
matrix,
including important information such as win rate, maximum drawdown, and profit
results.
It also allows us to save the data and continue adding more backtests, which will
all be stored
in the strategy library.
If you're interested in using trader edge, you can sign up for a 7 day free trial
by
checking the link in the description.
So guys, I hope this video provided some value for you.
If it did, please hit the like button to show your support and subscribe to our
channel
if you're new.
Also, don't forget to comment below with your thoughts and questions since we do
our
best to answer them all.
See you in the next episode!