Chapter 2 lesson 1 - Breaker blocks

Question 1

How is a bearish breaker block formed?

Answer 1

1. A swing high is formed.
2. A swing low is formed.
3. A higher high is formed.
4. Price reverses, runs below the previous swing low, and a lower low is formed.
   5.The last down close candle, or consecutive down close candles, prior to the high, is the breaker block.
5. Price returns to the breaker which allows interbank traders to mitigate long positions and add to short positions as the market reprices lower.
6. The bodies of the candle should respect the breaker block when price retests the area before price moves lower.

Question 2

How is a bullish breaker block formed?

Answer 2

1. A swing low is formed.
2. A swing high is formed.
3. A lower low is formed.
4. Price reverses, runs above the previous swing high, and a higher high is formed.
   5.The last up close candle, or consecutive up close candles,prior to the low, is the breaker block.
5. Price returns to the breaker which allows interbank traders to mitigate long positions and add to short positions as the market reprices lower.
6. The bodies of the candle should respect the breaker block when price retests the area before price moves higher.

Question 3

How should the breaker block be traded?

Answer 3

You need to be in line with the higher time frame bias in order to trade breaker blocks successfully on the lower timeframe.

Enter the trade when price retests the breaker block.

The probability increases when a breaker block lines up with a FVG. In this case you can enter the trade at the start of the FVG, or at the breaker.

Question 4

Where should you place your stop loss?

Answer 4

In a bearish scenario, place your stop loss below the breaker block and FVG, or below the swing low.

In a bullish scenario, place your stop loss above the breaker block and FVG, or above the swing high.

If there’s second candle close to the breaker, consider that candle as part of the breaker when placing your stop loss.

Question 5

How should the breaker block be used in analysis?

Answer 5

The breaker block on a higher time frame can be used as a reference point for entries on lower time frames.
It can be used as a reference point to anticipate where price might reject off of, or react to.

On the higher timeframes, look for rejection off the areas of interest, eg mitigation area, breaker block, order blocks & FVG.
When you get the reaction on the higher time frame at these specific price points, you want to look for a trade on the lower timeframe that is in the direction of the rejection

Question 6

What is the theory of the breaker block?

Answer 6

Lets consider a bearish breaker.
High - low - higher high - lower low, the breaker block is the lowest downclose candle in the low between the highs.

Now the breaker block is a reference point in price to the algorithm and why is that?
When we run the high and break lower that is the beginning of the market structure shift, a change in the state of price delivery. The algorithm uses that as a reference point as the beginning and will look to trade there incase any large fund trader is offside with the market shift allowing them to mitigate at the breaker and continue lower with the market structure shift. Hence why we trade the breaker on lower time frames. You cannot have market structure shift without a breaker block. If there is imbalance left as well as a breaker block during a market structure shift then place stop loss above the imbalance