The next chapter in Drift's "Price Action Concepts 101" series will be on breakers. This comprehensive series equips aspiring price action traders with essential concepts to help integrate these strategies into their trading. As the fourth installment of this series, it follows the previously covered topics of Fair Value Gaps, OrderBlocks, and Market Structure available in Drift's advanced learning section here. To fully grasp the content of this article, we recommend revisiting the previously covered concepts as we will be integrating them into this article.
What Is A Breaker Block?
A breaker block is an important level of interest for price action traders. It is defined as a failed orderblock, covered in detail in the previous price action article. If you are not familiar with orderblocks, it’s a concept that refers to the accumulation of orders at specific price levels, where large traders and market participants are interested in either entering or exiting the market. These orders are usually placed by large market participants to either take a position or cover their existing one.
A breaker block is formed when the market structure changes, and there was liquidity taken as a result. As the market structure changes, the orderblock fails, resulting in a breaker block. This level serves as a crucial point for price action traders to enter the market, as it represents the point where large traders have either taken liquidity or reduced their exposure to the market.
The diagram above illustrates a bullish breaker, which occurs when a bearish order block fails to act as a resistance level and liquidity is taken to the downside. This results in a market structure break, which confirms the bullish breaker, allowing price action traders to anticipate the trend to continue in the new direction.
To identify bearish breakers, traders must first identify a failed bullish order block. This happens when liquidity is taken to the upside, later causing the bullish order block to fail. Once identified, traders can take advantage of these bearish breakers by entering the market and taking advantage of price reversals. Below is an example of a bearish breaker.
By understanding and identifying these breakers, traders can make informed decisions and potentially benefit from the trend reversal. It is important to note, however, that breakers do not guarantee a trend reversal and should be used in conjunction with other analyses.
Taking Advantage Of Breakers On Drift
Now that we understand how to identify breakers, let's explore how traders can place trades to utilize this price action concept.
As mentioned earlier, breakers can be used as a point of entry into the market. Traders can place their trades at these breakers and set their stop loss below the swing low to target trend continuation in the new direction. To target trend continuation, traders can look for the next source of liquidity, whether it be a fair value gap (FVG), orderblock, or internal liquidity.
Breakers are considered one of the most powerful levels of interest in price action trading because they represent a level where traders are trapped and new traders are entering the market. When an order block, which had previously been anticipated by traders, ends up failing, those who had gone long are now seeking to cover or exit their positions. Also, new traders are entering the market once the breaker is revealed making it an extremely powerful level.
In conclusion, by placing trades at breaker levels and targeting trend continuation, traders can take advantage of the information provided by breakers and benefit from price reversals. Traders should always use caution and consider multiple factors when making trading decisions to ensure successful and informed trades.
Nothing in the text should constitute financial advice, Drift is not responsible for any losses that may occur by following the contents of this article. All content is provided here for educational purposes only.