Breaker Block

A “Breaker Block” is a concept used in trading, particularly in price action and supply/demand analysis. It identifies a shift in market structure where a previous support or resistance level (or order block) gets invalidated and turns into a potential entry point for a new trend direction.

Introduction to Breaker Block

• What is it?
  A breaker block occurs when price violates a significant level, such as a swing low or swing high, trapping traders who entered positions expecting the original trend to continue. This violation often leads to a sharp reversal, providing an opportunity to enter trades in the new direction.
• Key Components:
  1. Swing High/Low Violation: The price moves beyond a prior key level, invalidating the previous trend.
  2. Stop-Hunt or Liquidity Grab: The move traps traders by triggering their stop-loss orders.
  3. Breaker Zone: The area of the invalidated level that becomes a new zone of interest (support or resistance) for future trades.

Trade Setup Using a Bearish Breaker Block

1. Market Context:
   Look for a downtrend or bearish market structure, where a swing low is violated after liquidity is taken.
2. Identify the Breaker Block:
   • Mark the swing low violation (as shown in the diagram).
   • Highlight the last bullish candle before the move down. This becomes the “breaker zone.”
3. Entry Points:
   • Wait for price to retrace into the breaker block (green zone in the diagram).
   • Look for rejection signals (e.g., bearish candlestick patterns or reduced momentum) to confirm entry.
4. Stop-Loss Placement:
   • Place the stop-loss above the high of the breaker block to account for potential whipsaws.
5. Take-Profit Targets:
   • Target the next significant support level or measure risk-to-reward ratios (e.g., 1:2 or 1:3).

Additional Tips:

• Combine breaker blocks with other tools like RSI divergence, Fibonacci retracement, or volume analysis for confirmation.
• Avoid trading during low-liquidity sessions or just before high-impact news events.
• Use smaller timeframes to refine entries, but ensure the breaker block aligns with the higher timeframe trend.