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Currency Pros E-Book - Trading
Economics (Harvard University)
Studocu is not sponsored or endorsed by any college or university
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INTRODUCTION
Welcome to the Currency Pros Strategy E-Book! This book is a step by step complete
guide to trading institutional order blocks with precision accuracy.
In this book you will gain a full understanding of how and why we use order blocks as
the main component of our trading strategy and how it allows us to achieve trade entries
with extreme accuracy. You will learn how this strategy varies from typical retail trading
methods and how we are able to have such minimal stop losses and large rewards.
It’s important to note that we are all retail traders. None of us trade enough volume to
move the market by even a fractional PIP. We are all simply small players in a game
controlled by central banks, hedge funds and other institutions. These institutional
players do not use fibonacci, moving averages, support and resistance, MACD, RSI, trend
lines etc.. These are retail methods that retail traders have created which is why
sometimes they work and sometimes they don’t.
Most of you reading this have probably had experience with the trading methods listed
above. I’m sure you are constantly wondering why your trading is so inconsistent and
doesn’t make any logical sense.
“There are so many ways to draw trend lines and Fibonacci, which one is correct?” The
answer is none of them. “Which indicator should I use to predict price?” None, indicators
lag and do not explain the logic in the market. In the next section of this book you will
begin to understand the why, how and where in the market. Get ready to gain a new
understanding of how the financial markets operate and prepare to level up your trading.
We are not institutional traders, we are retail traders with an institutional edge.
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WHAT ARE ORDER BLOCKS?
Institutional money enters the market algorithmically at key levels in increments known
as order blocks. Rather than entering hundreds of millions in currency into the market at
once, institutional orders are broken up into multiple entries creating tight consolidations
that we see right before an impulsive movement in the market. This method leaves an
institutional footprint on a chart that can be identified and capitalized on.
The most important thing to understand about these institutional orders is that there is
no protective stop loss being used. The reason for this is because institutions hedge their
positions (buying and selling simultaneously). You may be wondering, “Why would they
do that instead of just using a stop loss?” The answer is simple, institutions move the
market, they do not lose.
Let’s say a short position and long position are taken at the same time at a key level in
the market; market momentum dictates price to move higher in favour of the long
position. That still leaves an unattended short position in drawdown (unrealized loss).
Once the long position has reached the desired target, price must then retrace back
down to the short positions point of origin to mitigate the unrealized loss. Once the loss
is mitigated, more often than not price will then continue in favour of the dominant
trends momentum.
During this process of order block mitigation, retail traders are busy focusing on double
tops, flags, fibonacci, moving averages and other indicators that have nothing to do with
WHY price does what it does. This allows institutional money to play with retail traders
and liquidate their positions in the form of “stop hunts”, or “fake-outs”. The truth is, this is
simply institutional algorithms doing what they were designed to do.
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HOW TO TRADE ORDER BLOCKS
Let’s begin to take a look at some real price action examples of order blocks so we can
learn to identify them and trade them with a rule based system. The first thing we look for
before identifying order blocks (OB), is a break of structure (BOS). This indicates a shift or
a strong continuation in market trend.
If there is no BOS, there is no order block. Do not overcomplicate your analysis. Higher
time frames (HTF) are best for identifying OB’s. EX: Daily, 4H, 1H.
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HOW TO TRADE ORDER BLOCKS
The next step is to identify the order block zone. These zones are easily identifiable
because they are tight consolidation areas in-between impulsive moves.
The best way to highlight these zones is with a simple rectangle tool in your charting
platform. It’s important to note that you should include both candlestick bodies and wicks
when plotting your order block zones.
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HOW TO TRADE ORDER BLOCKS
Now that we have identified our point of interest (POI) we can refine our zone down to
the last opposing candle prior to the impulsive move. In this scenario, we have bullish
momentum and we are looking for buys. We need to identify the last bearish candle prior
to the bullish impulsive move. If the surrounding candles and wicks are small, it’s best to
include them as well.
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HOW TO TRADE ORDER BLOCKS
This is the last area of institutional activity prior to the impulse. This is the area where a
hedge position may be mitigated before continuing bullish momentum. These are the
points in the market that allow us to achieve entries with sniper level accuracy and very
tight stop losses, resulting in very favourable risk/reward positions.
Let’s move on to structuring our trade position. If we have accurately analyzed the
market, we should be able to place our entry at the open of the OB candle, our stop loss
just below the OB candle and our target profit at the nearest structural high.
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HOW TO TRADE ORDER BLOCKS
The tight stop loss may look intimidating, however we do not get emotional. We know
that if our stop loss is hit, our analysis was wrong and that it’s time to reassess the market
for a new entry, wait for a better setup, or simply move on to another currency pair.
This position was triggered perfectly with only 2 PIP’s of drawdown, resulting in a
massive +10.77R profit. A textbook example of order block mitigation and continuation.
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ORDER BLOCK REFINEMENT
As previously mentioned, it is best to locate order blocks on higher time frames (HTF),
however that typically leaves you with a very large range to place your stop loss. With this
strategy it is not necessary to have a stop loss any larger than 10 PIP’s. In order to shrink
the gap between entry and stop loss, we must refine the order block by utilizing lower
time frames (LTF).
In the example below, we can see an order block on the 4H time frame that was
responsible for a break of structure (BOS). We label this our point of interest (POI).
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ORDER BLOCK REFINEMENT
To begin our refinement process, we need to perform top down analysis and drop
down to a lower time frame. From the 4H, we drop down to the 1H time frame.
As soon as we get to the 1H time frame and zoom in, we can see that the 4H bearish
candle is actually comprised of smaller 1H candles. We can now adjust our rectangular
zone to fit the last bearish 1H candle. By doing this, we drastically shrink our zone from
24 PIP’s to just over 9 PIP’s.
As previously discussed, our maximum stop loss is 10 PIP’s, so this trade setup now fits
within our parameters. It’s important to note that as soon as criteria is met we must stop
the refinement process. If we get too greedy with our entries and “over refine” the zone,
we will often miss opportunities and watch price take off without us.
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ORDER BLOCK REFINEMENT
We now have a clear entry and stop loss zone to set up our trade. It’s best to target the
open of the candle for our entry, this achieves better risk/reward parameters and is a
more probable mitigation point for price to test.
As for the stop loss, it can be placed just below the order block candle. The target profit
can either be set at most recent structural highs/lows, or the next major order block that
price may react from. In this case, targets are set at a recent structural high. This position
has a potential outcome of a +16.8 reward.
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ORDER BLOCK REFINEMENT
Now let’s take a look at the 4H time frame again to see how this trade eventually
played out. The position triggered with precision accuracy at our refined zone, only
experiencing a small drawdown of -1.5 PIP’s.
We technically could have entered from the original 4H zone and still have been
triggered in. However, the entry point would have been higher up which would increase
the stop loss size and drastically minimize the overall risk/reward ratio. By risking only 1%
of capital on this trade, the result of +16.8% came to fruition in just 10 days which is more
than what most traders take home in an entire year.
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ENTRY TYPES
With this strategy there are two main entry types we look for in order to execute trades.
So far in this book we have only learned one of them, the risk entry. Now that you have a
firm understanding of the risk entry as an introduction to this strategy, it’s time to learn
about the confirmation entry.
The risk entry is when we identify an order block, refine it and then place a limit order
at the desired level. This entry style can achieve great results but overall has a lower win
rate. The confirmation entry tends to be much more successful because as you may have
guessed, we have an added layer of confirmation prior to our trade execution. See the
image below for an example of a confirmation entry.
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CONFIRMATION ENTRIES
The concept of the confirmation entry is simple. After locating the higher time frame
order block, we patiently wait for price to enter that zone. If price violates the order block
then we have just avoided an unnecessary loss. If price begins to reject the order block
that means we can drop to a lower time frame (EX: 15M, 5M, 1M) to locate a BOS and the
order block responsible for it. After the HTF order block has been confirmed valid, we can
set a limit order at our LTF order block.
Let’s walk through a real trade example to better understand how confirmation entries
work. In this example our HTF order block is located on the 30M time frame. Price has
entered the order block zone which means we can now utilize a lower time frame and
wait for proper BOS confirmation.
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CONFIRMATION ENTRIES
From the 1M time frame we have identified a clear BOS which means we can highlight
the order block candle responsible for this move. We can now set a sell limit order at the
OB, place our protective stop loss slightly above the zone and our target profit at the next
major OB or most recent structural low. In this case, the target was set at the next OB.
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CONFIRMATION ENTRIES
With a stop loss of just -4 PIP’s and a target profit of +36 PIP’s, this confirmation entry
trade resulted in a healthy +9R profit. As you can see, if we simply utilized the risk entry in
this scenario we would have had a much larger stop loss which means less favourable
risk/reward. Aside from that, price almost reached the very top of the 30M HTF OB which
means we would have experienced a significant drawdown phase. Confirmation entries
add an extra layer of protection, confidence and in most cases results in more profit.
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IMBALANCE
Now that you have an understanding of what order blocks are and how we can trade
them, it’s time to briefly cover a topic that can add significant confluence to your trades.
One of the main criteria we look for when identifying an order block, is imbalance. This
is when an order block is responsible for creating such impulsive volume in the market
that it throws of the equilibrium between buyers and sellers, forming a gap. This is
referred to as imbalance or inefficient price action (IPA). These gaps act as a magnet for
price to retrace to, in order to correct the disturbance in market equilibrium.
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IMBALANCE
As you can see, we aren’t trading based on the imbalance zone itself but rather using it
as confluence to strengthen our decision to target an order block entry. An order block
that acted as the point of origin for such a disruption in price is considered a higher
probability entry point.
When it comes to imbalance / inefficiency zones there is no telling when they will be
filled but we know they certainly will when the time is right. This is why we don’t attempt
to trade them on their own. It is an important tool to keep in your arsenal when analyzing
the markets.
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LIQUIDITY
Market liquidity is an overlooked topic when it comes to trading. The definition of
liquidity is; “the availability of liquid assets to a market or company”. In every financial
market, for every buyer there is a seller and for every winner there is a loser. Every time
you lose a trade you are adding liquidity into the market.
The currency market is the most liquid market in the world because it is most commonly
traded, where as the stock market for example is less liquid because a great deal of
investors are holding positions for many years or decades at a time.
If you have traded currencies before then you are most likely familiar with the terms
“stop hunts” or “fake-outs”, this refers to a traders protective stop loss being hit causing a
realized loss and shortly after the loss is realized, price moves in the direction of your
initial bias. This occurs because institutional money needs liquidity in the market in order
to place their large positions. “Stop hunts” or “liquidity grabs” as we like to call them, are
the main reason as to why common retail trading methods such as trend lines and chart
patterns (double tops/bottoms, head and shoulders, flags, wedges etc..) rarely work. If
95% of retail traders are utilizing these methods, then of course institutional algorithms
will be programmed to purge stop losses surrounding these chart formations.
Often times traders have the correct directional bias, yet price will grab liquidity from
both buyers and sellers right before the true directional move takes place. Training your
eyes to spot where liquidity may be sitting in the market is important when adding
confluence to your trade, similarly to what we learned about market imbalance in the
previous section. We do not trade these methods, we simply use them as evidence when
building a case around a potential trade setup. See the next chart example to better
understand how liquidity grabs can effect both buyers and sellers.
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LIQUIDITY
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RISK MANAGEMENT
The next two sections of this book could be the most important information you need
in your trading career, starting with how to properly manage risk and exposure. This is an
area where most traders fail miserably so please read carefully.
The internet can be a very toxic place for a trader. Everywhere you look there are
“mentors” and “gurus” influencing others to risk obscene amounts of capital per trade by
participating in “account flip challenges” or simply by portraying a lifestyle that causes
others to be impatient and neglect the process of becoming a skilled trader. These
unhealthy practices can potentially lead you down a negative path. No successful and
disciplined trader will ever tell you that it’s ok to risk more than 1-2% of capital per trade.
In fact, most traders with large capital are more than happy risking 0.5% of their capital
per trade. This is the only way we can remain profitable long term and withstand losing
streaks as well as uncertain market conditions.
The safest and easiest rule to stick to is risking 1% of capital per trade. Combine this
strict rule with high risk/reward trades and you will be unstoppable. The only factor to
consider with this rule is that when you are trading correlated currency pairs together,
you must lower your risk even further. For example if you are buying USD/CAD while
simultaneously selling EUR/USD, it is wise to split your 1% risk to 0.5% on each trade.
This is because both currency pairs are tied to the US dollar. If your bias on the USD turns
out to be wrong, both trade positions will most likely suffer. In the event that both trades
are losses, you still end up with a total loss of 1% of your trading capital.
Risk management is simple, don’t over think it. Treat trading like a business and protect
your capital as best as you can. Over leveraging, over trading and revenge trading are a
quick path to blowing your trading account.
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PSYCHOLOGY
One of the most common pitfalls traders fall victim to is focusing solely on the trading
strategy while neglecting the psychology aspect of this career path.
Psychology is arguably the most important aspect to successful long-term trading. Why
is it that out of a group of traders taught the exact same strategy, some are successful and
some are not? The truth is simple, some people have an easier time managing their
emotions than others. How do you feel when you lose a trade or fail at something in life?
Do you accept it, learn from it and keep moving forward or do you dwell on failure and
spiral into a path of depression and disappointment? Your answers to those questions
may be the reason you have not seen success in not just trading, but many aspects of life.
To be fair, with most trading strategies out there it’s easy to sympathize with struggling
traders who can’t manage their emotions. They’re constantly wondering why the market
is doing what it’s doing and where it’s going to move to next. However, with the strategy
that has been taught in this book as well as many other variations of smart money
concepts and institutional methodologies, we have a good understanding of the how,
why and where in the market. When you are consistently hitting 5R - 20R trades it
becomes very difficult to be upset with small -1R losses. This is why risk management and
psychology go hand in hand, proper risk management makes for a healthy state of mind.
Theres nothing more stressful and emotional than over-leveraging your trading account.
With this in mind, it’s up to you to work on yourself and make sure that you’re in a good
headspace. If your life is in chaos then you may have a hard time calmly focusing on
charts and high probability trade setups. Take care of yourself by mediating, getting
proper sleep, nourishment and exercise as much as you can. These small lifestyle changes
will improve your trading results more than you may think.
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SUMMARY
We have covered a great deal of information in this book, so let’s take a moment to
summarize everything we’ve learned into a step by step list. Use this page as a reference
point before placing a trade until it becomes natural to you.
Step 1: Gauge trend direction & locate a significant break of structure (BOS) on higher
time frames (EX: Daily, 4H, 1H).
Step 2: Identify & highlight the point of origin responsible for the BOS, this is your
order block candle (OB).
Step 3: Confirm that the OB caused the BOS. There is added confluence if the OB
created significant imbalance and/or cleared liquidity.
Step 4: Determine which entry style best suits the trading opportunity; a risk entry or a
confirmation entry.
Step 5: Set your order at the desired level, place your stop loss just above/below the
OB and place your target profit at the next OB or most recent structural high/low.
Step 6: Manage the trade responsibly by securing partial profits along the way and/or
moving your stop loss to your entry point to eliminate risk once the trade has progressed
significantly.
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QUESTIONS & ANSWERS
Here are some common questions regarding this trading strategy and their respective
answers to provide some more clarity.
Q: Which entry type should I use, risk or confirmation?
A: Risk entries are best when price is moving towards the OB in a slow, corrective
manor. Confirmation entries are best when price is moving impulsively towards the OB,
or if you have multiple OB’s and are not sure which one is valid.
Q: Does this strategy work on all currency pairs?
A: Yes, this strategy works across all currency pairs. It’s recommended to test a few and
find your favourites. Traders have better results when focusing on just 1-3 pairs.
Q: What is the win rate of this strategy?
A: The risk entry has an average win rate of 40% where as the confirmation entry has
an average win rate of 70%. These numbers will vary for each individual as we all view
the market differently, trade in different sessions and manage our trades in our own
personal ways.
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CONCLUSION
Congratulations! You’ve made it to the end of the Currency Pros E-Book. You now have
a full step by step strategy and a proven edge to trade the financial markets.
What you do with this information however, is entirely up to you. A trading strategy is
just one minor component to being a successful trader. The real work is in how you
choose to operate on a daily basis; how you manage your emotions during a losing
streak, how you avoid over trading or revenge trading, how you keep a level head during
winning streaks and how you practice humility. Remember that if you are not humble, the
market will humble you.
Trading is a very subjective craft. It is based on the individual traders perspective which
is one of the reasons why many people can be taught the same strategy but only few will
be successful with it. You must learn your own personal preferences when it comes to
trading; your preferred trading session, ideal trade duration, risk tolerance, profit goals
and so much more.
Out of all the strategies that retail traders utilize to trade the financial markets, this is by
far the most powerful and abundant. Understanding the institutional side of trading
unlocks a new perspective on how the markets operate. Finally, you have the knowledge
of WHY and HOW rather than just guessing, assuming and weighing probabilities like the
majority of retail traders do.
Trade responsibly, trade with confidence, trade with reason and logic. I hope this book
was of great value to you, remember to take time to relax and enjoy life as a consistently
profitable trader and a Currency Pro!
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