Breaker blocks are price zones formed after a failed support or resistance level is broken and retested. Common in institutional trading, they help forex traders spot reversals and false breakouts. Entering on a retest of a breaker block may help traders align with institutional flow and make more informed decisions on trade entries and risk management.
In this article, we will discuss everything about breaker blocks in depth.
What is breaker block trading?
Breaker block trading is a price action strategy to identify key reversal zones in the market. A breaker block forms when a support or resistance level is broken, followed by a strong price move and then a retest of the broken level.
There are two types of breaker blocks:
1. Bullish breaker block
A bullish breaker block forms when a previous bearish order block fails and is broken by a bullish candle. This is accompanied by a Fair Value Gap (FVG). It signals a shift in market direction.
When the price closes above the high of a failed bearish order block, that level transitions from resistance to support. On retest, this zone often triggers a bullish continuation.
To identify a valid bullish breaker block, look for the following:
- A clearly failed bearish order block
- A liquidity sweep, taking out recent lows
- A bullish candlestick that breaks the order block and leaves behind an FVG
- On retest, confirmation through a bullish candlestick pattern like a hammer, inverted hammer, doji, tweezer bottom, or bullish engulfing
2. Bearish breaker block
A bearish breaker block is the mirror opposite. It forms when a bullish order block fails, and the price closes below it while creating an FVG.
This indicates that bullish momentum has been rejected. The price is now likely to reverse, and the broken support becomes resistance.
Key elements of a bearish breaker block include:
- A failed bullish order block
- A liquidity grab above previous highs
- A bearish candle that breaks the order block and forms an FVG
- A bearish candlestick pattern on the retest, such as a shooting star, doji, tweezer top, or bearish engulfing
How do breaker blocks work in trading?
The first step in trading using a breaker block is recognizing a shift in market structure or a change of character (ChoCh). This shift signals that the current trend may be weakening or reversing.
A breaker block is usually a failed order block. It forms when the price breaks out of a consolidation phase or moves beyond a support or resistance level, typically where a swing high or low exists.
Similar to how broken resistance turns into support, a broken order block becomes a breaker block. This transformation also reflects a shift in market structure.
A strong breaker block includes two key elements:
- The break of the original order block with the formation of a Fair Value Gap (FVG) usually triggers stop-loss orders and grabs liquidity.
- The price returns to the breaker block zone on the retest, and a supportive candlestick formation appears. This confirms the likely direction of the move.
Trading strategies to use with breaker blocks
Order block rejection strategy
The order block strategy identifies an order block (a price zone where institutions are likely to have placed significant trades). When the price rejects this zone and then breaks through it, forming a breaker block, it often signals a potential trend reversal. The trade opportunity lies in waiting for a retest of the breaker block, aligning with institutional behavior.
In this approach, a trader looks for an order block that appears just before a breaker block forms. If the price rejects the order block and breaks it decisively, forming a breaker block, they should wait for the price to retest this new zone. This move indicates institutional rejection of old support or resistance and suggests a possible trend shift.
Breaker block with a liquidity trap
The liquidity trap breaker block strategy merges the concept of liquidity zones (areas with equal highs or lows) with the formation of a breaker block. When the price first breaks these liquidity zones, it often traps retail traders, only to reverse and form a breaker block. This signals that the breakout was false and part of a smart money liquidity grab. Entry is typically considered on the retest of the breaker block as traders look for signs of a potential reversal.
Traders identify equal highs or lows, which are key liquidity zones targeted by institutions. If the price breaks these levels and forms a breaker block, it reveals a classic smart money trap. This confirms that the breakout lacked real continuation. Traders may then monitor the retest of the breaker block for possible reversal signals, while carefully managing risk and confirming setups with other indicators.
Step-wise guide to identify breaker blocks in trading
1. Identify a break of structure (BOS)
Start by looking for a clear break in a previous high or low. This signals a shift in market direction and hints at institutional involvement.
2. Find the potential breaker block
- For a bullish breaker block, locate the last bearish candle before the strong upward move
- For a bearish breaker block, look for the last bullish candle before a sharp drop
These candles represent areas where liquidity was taken before the price reversed with strength.
3. Wait for a retest of the breaker block
After the breakout, the price often returns to this zone. This retest helps confirm whether the breaker block is valid and ready to act as a new support or resistance level.
4. Look for confirmation signals
During the retest, watch for strong candlestick patterns, such as bullish/bearish engulfing, pin bars, or reversal Dojis. These signals increase the probability of a successful trade.
The ups and downs of using breaker blocks
Breaker blocks are used by some traders to identify potential institutional activity and false breakouts, which may help in assessing possible reversals or short-term trading opportunities. However, they require precise identification and timing. Misreading a breaker block can lead to early entries or losses. Hence, patience and experience are key to using this strategy in live markets.
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