ICT Order Blocks v2 (Debug)

Josh has a very large PP xD

Understanding Order Blocks (OBs) - The ICT Perspective

This document delves into the concept of Order Blocks (OBs) from the perspective of the ICT methodology. It outlines what OBs are, their significance in trading, and how the "ICT Order Blocks v2 (Refined)" indicator functions to identify and visualize these critical price levels. By understanding OBs, traders can better navigate market movements and make informed decisions based on institutional trading behavior.

What is an Order Block (OB)?

Within ICT methodology, an Order Block represents a specific price candle where significant buying or selling interest from institutions (Smart Money) is believed to have occurred. They are potential areas where price might return and react.

Bullish Order Block: Typically the last down-closing candle before a strong, impulsive upward move (displacement). It suggests institutions may have absorbed selling pressure and initiated long positions here.

Bearish Order Block: Typically the last up-closing candle before a strong, impulsive downward move (displacement). It suggests institutions may have distributed long positions or initiated short positions here.

Why are OBs Significant (ICT View)?

Institutional Footprint: They mark potential zones of large order execution.

Support/Resistance: Unmitigated OBs can act as sensitive price levels where reactions are expected. Bullish OBs may provide support; Bearish OBs may provide resistance.

Origin of Moves: They often mark the origin point of significant price swings.

Liquidity Engineering: Institutions might drive price back to OBs to mitigate earlier positions or to engineer liquidity before continuing a move.

Common Refinements

ICT often emphasizes higher probability OBs that are associated with:

Displacement: The move away from the OB is sharp and decisive.

Fair Value Gaps (FVGs): An FVG forming immediately after the OB strengthens its validity.

OB Mitigation: This refers to price returning to the level of the Order Block after its formation. Price might react at the edge (proximal line) or the 50% level (mean threshold) of the OB. An OB is often considered fully mitigated or invalidated if price trades decisively through its entire range, especially with a candle body closing beyond it.

How the "ICT Order Blocks v2 (Refined)" Indicator Works

This indicator automates the detection and visualization of the most recent unmitigated Order Block of each type (Bullish/Bearish), incorporating optional filters.

Detection:

It looks at the relationship between the candle two bars ago ([2]), the previous candle ([1]), and potentially the current candle ([0]).

Bullish OB: Identifies if candle [2] was a down-close (close[2] < open[2]) AND candle [1] broke above the high of candle [2] (high[1] > high[2]).

Bearish OB: Identifies if candle [2] was an up-close (close[2] > open[2]) AND candle [1] broke below the low of candle [2] (low[1] < low[2]).

Accuracy Filters (Optional Inputs):

These filters help identify potentially higher-probability OBs:

Require Fair Value Gap (FVG)?: If enabled, the indicator checks if an FVG formed immediately after the OB candle ([2]). Specifically, it looks for a gap between candle [2] and candle [0] (low[0] > high[2] for Bullish OB confirmation, high[0] < low[2] for Bearish).

Require Strong Close Breakout?: If enabled, it requires the breakout candle ([1]) to close beyond the range of the OB candle ([2]). (close[1] > high[2] for Bullish, close[1] < low[2] for Bearish). This suggests stronger confirmation.

Storing the Most Recent OB:

When an OB is detected and passes any enabled filters, its details (high, low, formation bar index) are stored. Crucially, this indicator only tracks the single most recent valid unmitigated OB of each type (one Bullish, one Bearish) using var variables. If a newer valid OB forms, it replaces the previously stored one.

Drawing Boxes:

If a valid Bullish OB is being tracked (and Show Bullish OBs is enabled), it draws a box (box.new) using the high and low of the identified OB candle ([2]). The same process applies to Bearish OBs (Show Bearish OBs enabled). The boxes automatically extend to the right (extend.right) and their right edge is updated on each new bar (box.set_right) until they are mitigated. Labels ("Bull OB" / "Bear OB") are displayed inside the boxes.

Mitigation & Box Deletion:

The indicator checks if the current closing price (close[0]) has moved entirely beyond the range of the tracked OB.

Mitigation Rule Used: A Bullish OB is considered mitigated if close < bull_ob_low. A Bearish OB is considered mitigated if close > bear_ob_high. Once an OB is marked as mitigated, the indicator stops tracking it and its corresponding box is automatically deleted (box.delete) from the chart.

This indicator provides a dynamic visualization of the most recent, potentially significant Order Blocks that meet the specified criteria, helping traders identify key areas of interest based on ICT principles.