Institutional Trading Order Blocks



The theory of operating with Order Blocks or Institutional Trading has gained popularity among youTubers, bloggers, and some algorithmic companies, who promote it as a method to decipher how banks and large institutions carry out trading operations, both in scalping and swing trading.

In summary, Order Blocks are zones of strong supply and demand that may indicate a change in a marked trend, usually identifiable by a sharp change with high trading volume.

Conclusion & Analysis

It is important to consider several critical considerations when applying this strategy:

Market Behavior: Financial assets, whether stocks, cryptocurrencies, or others, do not follow predictable oscillation patterns. The notion of retracement to fill order blocks, known as market inefficiencies, is debatable and not always verified in practice.

Limitations of Order Blocks: Blocks created by algorithms or manually represent support or resistance points according to Volume Profile, but do not guarantee optimal buying or selling points. During high volatility, such as during a market crash, placing orders in these blocks can be risky, as institutions may manipulate the market to break those blocks and leave retail traders at a loss.

Backtesting Results: Despite its popularity, this strategy does not necessarily yield good results in backtesting. Trading solely based on detecting order blocks can lead to significant financial losses.

Effectiveness in Cryptocurrency Trading: In the specific case of cryptocurrency trading, this strategy may be even less effective, as the cryptocurrency market tends to be highly volatile and less predictable compared to other financial markets. In many cases, expected retracement points may never materialize, and the strategy may be useful only in sideways or narrow range markets.

In conclusion, while the theory of Order Blocks or Institutional Trading may seem attractive, traders should be cautious when applying it and not base their trading decisions solely on this strategy. It is crucial to complement it with a thorough market analysis and use it as part of a broader and diversified approach to minimize risks and maximize profits.