Smart money: order blocks, FVG, liquidity
What you learn in 3 minutesThis lesson covers three terms you will see on chart-based lessons: order block, fair value gap and liquidity. None of them is a signal, and none of them tells you what will happen next. What they do is give you a shared vocabulary for talking about where large orders are assumed to sit, and what that assumption costs you in pips, and therefore in naira, when you act on it.
One order block, one liquidity sweep, 20 pips on 0.10 lots
| Step | Amount | Note |
|---|---|---|
| Instrument and price area | EUR/USD around 1.0850 | The quote currency is USD. One pip is 0.0001 in the price. |
| Position size | 0.10 lots | One standard lot is 100,000 units, so 0.10 lots is 10,000 units. |
| Value of one pip on one standard lot | USD 10 | 100,000 x 0.0001 = 10 units of the quote currency, USD. |
| Value of one pip on 0.10 lots | USD 1 | USD 10 x 0.10 = USD 1. |
| Move from the order block to the sweep | 20 pips | The distance marked on the schematic chart between the block and the sweep. |
| Result of 20 pips on 0.10 lots | USD 20 | 20 pips x USD 1 per pip = USD 20. |
| Same USD 20 in naira at an example rate of ₦1,600 to USD 1 | ₦32,000 | USD 20 x ₦1,600 = ₦32,000. The rate is an example only; the live rate varies and changes during the day. |
Your broker may round pip values, quote a slightly different price, and charge a spread or commission on top. That spread is a cost you pay whether the trade works or not. Check the exact figures on your own platform before you size a position.
The mistake people make here
The common mistake is to treat an order block, a fair value gap or a liquidity sweep as a prediction. They are labels drawn after the fact, and two people can mark the same chart differently. People also forget that acting on any of them costs money in spread and commission before the market moves at all. Instead, use the terms to describe what you see, write down the price levels you are watching, and work out the pip value and the cost of the trade first. If the cost is larger than the move you are expecting, the label does not matter.Check yourself
You mark a 15-pip move on EUR/USD and trade 0.20 lots. What is the result in USD, and in naira at an example rate of ₦1,600 to USD 1?
One pip on 0.20 lots is USD 10 x 0.20 = USD 2. So 15 pips x USD 2 = USD 30. At ₦1,600 to USD 1, that is USD 30 x ₦1,600 = ₦48,000. The rate is an example; the live rate varies.
If one pip on one standard lot is USD 10, what is one pip worth on 0.05 lots?
USD 10 x 0.05 = USD 0.50.