Breaker Block

Breaker block is so-called an order block (OB) broken by a strong impulse without a
pullback reaction. A prerequisite for the formation of a breaker block is to break the last
high or low, depending on the trend.

The purpose of a Breaker Block is to create a price movement with manipulation to

gather liquidity towards important highs or lows, followed by a breakout in the opposite
direction. During this process, a popular trading setup called Stop Hunt is formed. Stop
Hunt involves manipulating the price to trigger buystops or sellstops orders.

STOP HUNT is a smart money practice that happens very often. Imagine this: the
market moves straight to your stop loss, hits it, and immediately turns in the other
direction - you are stopped out. The name of all this is to stop the hunt.

Smart money uses this method to take their positions at the price they want, in the best
possible way for themselves. By manipulating the price, they will force you to go in a
certain direction, and then swallow your position abruptly. It is worth being alert if
the liquidity zone is very large and pronounced. There is a high chance that smart
money will target this particular zone, especially if it is against the main trend.
The Breaker Block operates on a similar principle as OB, but the reaction from the BB
occurs only after a strong impulse penetration. Once the Stop Hunt movement has
manipulated liquidity and led to a trend change, large capital often returns the price to
the breaker block zone for retesting. This is done to close unprofitable positions after
manipulation.

To gain a better understanding of the Breaker Block, it is crucial to analyze the

impulse candles on the chart accurately. For example, if we observe that a Bullish or
Bearish OB has been broken through, taking liquidity from a high or low level, it may
indicate a potential trend reversal, which is known as a Breaker Block.

BUT! Despite its name, a breaker block in trading is not necessarily a reversal pattern, it
can signal the continuation of a trend. To determine the trend of the market, you need to
consider the formation of higher highs (HH) and higher lows (HL) for a bullish trend
and lower lows (LL) and lower highs (LH) for a bearish one. A breaker is formed after
the formation of a new HH or LL during an impulse breakout of an order block.

Bullish and Bearish Breaker Block

Let's analyze the bullish and bearish breaker blocks separately:

Before a Bullish Breaker can form in the market, liquidity needs to be taken. To
change the direction of the trend in the market, an impulsive update of the low is
required, and to continue the uptrend, an impulsive grab of liquidity from the HL level
is required. After the price moves in the opposite direction, an impulsive breakout of the
OB should be expected.
Before a Bearish Breaker enters the market , liquidity is taken from the previous
trend element. If the trend is down, then the momentum occurs at the LH level, and if
the trend changes from rising to falling, then the momentum occurs at the HH level.

To confirm a bearish breaker, you need to wait for a change in the direction of price
movement and an impulse breakout of the order block.

Let's think why breaker blocks work:

First, a major player knocks out stop-losses below a low to take a position. The buyers
placed their stops there. Which need to be picked up. That is, a large player opens a sell
position before this, just in the place where we will have a Breaker Block, initially it was
OB in a downward direction.

There is a breakdown and holding above this low, thereby showing the situation that
everything now we have the market intends to go in a downward direction. At this point,
a major player has successfully entered a buy position by removing stops. We no longer
have buyers, now there are sellers. And the price at this moment goes in the opposite
upward direction. Sellers will set stop losses beyond a significant high. The task of a
major player is now to take these stops beyond the high.

Right now, we still have OB in the downward direction, upon breakdown, the price
impulsively breaks the structure, it is important that the price does not try to fight off
this OB, otherwise, after the breakdown, we do not consider a BB. So, there was a
breakdown with a change in the descending structure to an ascending one, now we have
a breaker block formed from the former OB.
So now a major player has 2 positions, the first position was opened in the breaker block
for short - it is unprofitable, the second position was opened for long in the place where
liquidity was taken.

It is necessary to close the unprofitable sell position, so the price pulls back to the BB
zone.

BUT! Despite its name, a breaker block in trading is not always a reversal pattern, it can
signal the continuation of a trend. To determine the trend of the market, you need to
consider the formation of higher highs (HH) and higher lows (HL) for a bullish trend
and lower lows (LL) and highs (LH) for a bearish one. A breaker is formed after the
formation of a new HH or LL during an impulse breakout of an order block.

A bullish breaker block is formed on a downtrend. After the upward momentum,

speculators go long on the blue zone retest.

Bullish Breaker – a bullish range or up-close candle in the most recent Swing High
prior to an Old Low being violated. It becomes valid once stops are taken below a
previous low and breaks above the Swing High that contains the breaker candle.

To identify bullish breakers, traders must first identify a failed bearish order block. This
happens when liquidity is taken to the downside, later causing the bearish order block to
fail. Once identified, traders can take advantage of these bullish breakers by entering the
market and taking advantage of price reversals.

Key Elements – Low – High – Lower Low – Higher High.

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.

Pay close attention to the "Higher High" as it holds great importance. When the price
closes above this level, it suggests a strong desire for the price to keep rising. Similarly,
take note of the "Lower Low" because it acts as a stop run and implies that the price is
likely to move higher.

An aggressive stop immediately below the breaker block. We will get an excellent risk-
to-reward ratio. But such a stop will very often taking out. A conservative stop rarely
attracts price, it is safer, but the risk / reward ratio with this order placement is less
attractive compared to an aggressive one. Placing a conservative stop at short-term low.
Bearish Breaker – a bearish range or down-close candle in the most recent swing
Low prior to an Old High being violated. It becomes valid once stops are taken above a
previous high and breaks below the swing low that contains the breaker candle.

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.

Key Elements – High – Low – Higher High – Lower Low.

"Higher High" acts as a stop run, indicating that the price is likely to go lower. Similarly,
the "Lower Low" plays a significant role. When the price closes below this level, it
signifies a strong indication that the price intends to continue its downward movement.
We can consider only bodies to find a breaker because news candle can have long wicks
or regular candle can have small body (in this case we can consider breaker as entire
candle).

Advanced Theory On ICT Breaker

To confirm your bias or add to existing positions, it is essential to explore various points
of reference. ICT mentions the concept of "order blocks" and how they can be used as
reference points for trading.

These order blocks, also known as ICT Breakers, can be identified by observing the high
and low points of a given range. By measuring the range and analyzing the gradients
within it, you can determine potential entry and exit points.

Why did I say order block is breaker? Because a Breaker Block is OB broken through by
a powerful impulse, without bouncing from it. The main condition for the formation of a
breaker block is that the high or low is broken depending on the trend - that is, that
liquidity is taken.
If we examine the diagram here, we can identify a bearish breaker. It is important to
note that this is not a break and retest setup. Instead, it provides a schematic
understanding of how liquidity runs and results in a repricing lower. To effectively use
the breaker, we need to determine the current liquidity levels.
There are two ways to approach the breaker. In this case, it is a bearish breaker that
offers an additional entry point or reference for adding new short positions when we
anticipate a market drop.

This particular setup capitalizes on pending orders. It takes advantage of situations

where stops are hit, followed by a move in our favor, targeting retail traders who seek
trend continuations without considering liquidity and market narrative. These traders
often find themselves trapped in unfavorable positions.

To fully understand the breaker, we must consider two stages of liquidity.

The first stage involves short-term buy-side liquidity above the short-term high.
However, the breaker pattern seeks to reach higher time frame buy-side liquidity. We
observe the market's behavior to determine if it runs away from the initial liquidity pool.
Inside the price range from point A to point B, we find our target.

For this model, we utilize the price range from point A to point B. Once the market
creates a run and starts to decline, we can take a bearish stance. This means we are
expecting lower prices and have already initiated short positions. When the price runs
above the buy signal, it may not be our largest position. We might scale in with a larger
portion. For example, if we were trading ES, we would start with six contracts (ICT uses
mini, but we consider micro contracts), add three more, and then add one additional
contract, resulting in a 10-lot position.

This scaling approach allows us to manage potential drawdowns if the market quickly
reverses after reaching our initial target. Please note that this method may not suit
everyone, but it aims to enhance understanding of the breaker pattern and counteract
misguided teachings prevalent on YouTube and in various courses.

A to B price range: By calculating the Fibonacci levels based on this range, we can
determine our entry points. You take that leg from the high down to the low and lay your
Fibonacci on it. Taking one standard deviation lower from this range is the easiest and
most straightforward approach to using the breaker. This approach applies when we are
on the correct side of the trade and have a clear understanding of our objectives and the
prevailing market conditions.

If you're on the bullish side and in a bigger market, you don't need it to come down to
this level and trade back up. Many times, ICT annotates a breaker and enters at a lower
price before it even breaks out, as he is not a breakout trader or a break and retest
trader.

Now, let's address the concern of going short here and it is going right up or hitting the
stop loss. If that happens, it means the trade didn't work out, and you take a loss.

However, you can consider whether it still wants to go lower. If it does and nothing has
changed, you can re-enter with half the position size of your first trade. It's normal to
experience losing trades, and you won't be able to avoid them.

If we're bullish, the pattern we're observing could indicate a reversal or continuation in
an existing bull market. This can be used on an intraday basis across different time
frames, but it's essential to understand where liquidity exists. The best breakers are
those that engage two levels of sell-side liquidity, one at the short-term low and another
at a higher time frame.

To maximize the effectiveness of this approach, you can combine it with a higher time
frame buy model and compare the standard deviations between points A and B with the
larger liquidity pool. By understanding the overall market direction and utilizing these
patterns, you can enhance your trading strategy.
Breaker Block Projection: We measure A-B leg NOT manipulation leg. Measuring AB we
can get easiest bread and butter approach. We want to use 1STD as our target.

To determine entry points, we can use standard deviations based on the A to B price leg.
Using Fibonacci tools, we can identify areas of interest. For example, in the example
below, the one standard deviation below gives us a measured move of 4496.50. This
presents an easy bread and butter setup for entry. Additionally, we can focus on the up-
close candles within this price leg to further refine our buying strategy.

This approach is commonly seen in ICT recordings when he believes that the price will
rise but also may experience a larger retracement.
We aim for a level 1 standard deviation higher/lower than A to B. Additional standard
deviations (2, 3, 4, etc.) can be used if HTF liquidity supports it.