Write Blockers

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  1. Write Blockers: A Comprehensive Guide for Beginner Traders

Write blockers, in the context of technical analysis, represent a significant price level where selling pressure consistently emerges, preventing the price from moving higher. Understanding and identifying write blockers is crucial for traders aiming to predict potential reversals, identify support levels, and optimize their trading strategies. This article provides a detailed explanation of write blockers, covering their formation, identification, trading strategies, and common pitfalls for beginner traders.

What are Write Blockers?

Write blockers, also sometimes referred to as 'offer zones' or 'supply zones', are areas on a price chart where a large number of sell orders are concentrated. These orders are often placed by institutions (like hedge funds, banks, and market makers) or large individual traders who believe the price is overvalued at that level. When the price approaches the write blocker, these sellers begin to execute their orders, creating a temporary ceiling and potentially reversing the upward price momentum.

They differ from traditional Resistance levels in that resistance represents *past* price rejection, while write blockers represent *future* potential rejection. A write blocker is anticipating future selling; resistance is a record of past selling. Think of resistance as a wall already built, and a write blocker as the blueprints for a wall being constructed.

The term "write blocker" stems from the idea that these zones 'write' a block in the price's upward movement. The force of the selling pressure is strong enough to temporarily halt or reverse the price trend.

Formation of Write Blockers

Write blockers don't appear randomly. They form through specific price action patterns. Recognizing these patterns is the first step in identifying potential write blockers. Common formations include:

  • **Break of Structure (BOS) followed by Change of Character (CHoCH):** This is a cornerstone of Smart Money Concepts (SMC). A BOS indicates bullish momentum breaking previous highs, attracting buyers. However, a subsequent CHoCH signals a shift in character, with the price failing to make higher highs, suggesting institutions are preparing to enter short positions. This is often the first indication of a write blocker.
  • **Fair Value Gaps (FVG):** These gaps represent imbalances in price action, where price moved quickly, leaving gaps on the chart. Institutions often return to fill these gaps, but can also use them as areas to initiate short positions, contributing to the formation of a write blocker. Understanding Candlestick Patterns can help identify FVGs.
  • **Order Blocks:** These are specific candles that show strong institutional buying before a significant impulsive move. The high of the last bullish candle before a strong downward move often forms the upper boundary of a write blocker.
  • **Liquidity Void:** Areas where a significant amount of stop losses and buy orders are clustered. Institutions gravitate towards these areas to trigger stop losses and reverse the price.
  • **Three-Drive Pattern:** A more complex pattern involving three consecutive failed attempts to break a key level, ultimately leading to a strong bearish reversal.

It's important to note that not every BOS/CHoCH or FVG will result in a valid write blocker. Confirmation is key (see section below).

Identifying Write Blockers

Identifying a potential write blocker involves analyzing price action and confirming its validity. Here's a breakdown of the process:

1. **Identify Potential Zones:** Look for the formations described above (BOS/CHoCH, FVGs, Order Blocks). 2. **Look for Inefficiency:** Write blockers often form in areas of inefficient price action – where price moved quickly and didn't spend much time consolidating. 3. **Volume Analysis:** Increased volume around the potential write blocker suggests strong institutional interest. Tools like Volume Profile can be particularly helpful. 4. **Confirmation:** Don't trade based on potential write blockers alone. Wait for the price to *test* the zone and show signs of rejection. This rejection can manifest as: 

   *   Bearish candlesticks (e.g., Engulfing Pattern, Shooting Star, Evening Star).
   *   Failed attempts to break above the zone.
   *   Divergence on oscillators like the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD).

5. **Refinement:** Narrow down the zone to a specific area within the identified formation. Don’t treat the entire area as the write blocker; focus on the most likely point of rejection.

Trading Strategies Using Write Blockers

Once a valid write blocker has been identified, traders can employ several strategies:

  • **Short Entry:** The most common strategy is to enter a short position when the price tests and rejects the write blocker. Place a stop-loss order above the high of the write blocker. Risk Management is absolutely crucial here.
  • **Aggressive Short Entry:** For more aggressive traders, entering a short position *within* the write blocker zone, anticipating immediate rejection, can yield higher reward-to-risk ratios. This is riskier, however.
  • **Fade the Rally:** Instead of waiting for a rejection, some traders "fade the rally" by entering short positions as the price approaches the write blocker, anticipating a reversal before it even happens. This requires precise timing and a strong understanding of market sentiment.
  • **Confirmation with Multiple Timeframes:** Analyze the write blocker on multiple timeframes. A write blocker confirmed on a higher timeframe (e.g., daily chart) is generally more reliable than one identified solely on a lower timeframe (e.g., 15-minute chart).

Stop-Loss Placement and Target Setting

  • **Stop-Loss:** As mentioned, a common stop-loss placement is just above the high of the write blocker. This protects against false breakouts. Consider using a slightly wider stop-loss to account for volatility.
  • **Target Setting:** Targets can be set based on:
   *   **Previous Swing Lows:** A conservative target is the previous significant swing low.
   *   **Fibonacci Extensions:** Using Fibonacci extensions can project potential price targets based on the size of the initial move.
   *   **Liquidity Pools:** Identify areas where a large number of stop losses are clustered (liquidity pools) and set your target accordingly.
   *   **Equal Legs:** Projecting a target equal in distance to the distance between the write blocker and the entry point.

Common Pitfalls to Avoid

Beginner traders often make mistakes when trading write blockers. Here are some common pitfalls:

  • **Trading Without Confirmation:** Entering a trade based solely on a potential write blocker without waiting for rejection can lead to false signals and losses.
  • **Poor Stop-Loss Placement:** Placing stop-losses too close to the entry point can result in being stopped out prematurely by minor price fluctuations.
  • **Ignoring Market Context:** Write blockers should be analyzed in conjunction with the overall market trend and economic news. Trading against a strong trend can be risky.
  • **Overcomplicating the Analysis:** Focus on the core principles of write blocker identification and avoid getting bogged down in excessive technical indicators. Keep it simple.
  • **Revenge Trading:** After a losing trade, avoid impulsively entering another trade to recoup losses. Stick to your trading plan.
  • **Ignoring Risk Management:** Failing to properly manage risk can lead to significant losses. Always use appropriate position sizing and stop-loss orders.
  • **False Breakouts:** Write blockers can sometimes be broken, leading to false signals. Be prepared to adjust your strategy if the price breaks through the zone with strong momentum.
  • **Not Understanding Order Flow:** Write blockers are fundamentally about order flow. Attempting to understand the ‘why’ behind the price action, rather than just the ‘what’, is crucial.
  • **Treating All Write Blockers Equally:** The strength of a write blocker varies. Those forming on higher timeframes and confirmed by multiple factors are generally more reliable.

Advanced Considerations

  • **Dynamic Write Blockers:** Write blockers aren’t static. They can shift and evolve as price action unfolds. Continuously monitor and adjust your analysis accordingly.
  • **Combining with Other Technical Analysis Tools:** Write blockers work best when combined with other technical analysis tools, such as Trend Lines, Support and Resistance, and Chart Patterns.
  • **Intermarket Analysis:** Consider the impact of other markets (e.g., bonds, commodities) on the asset you are trading.
  • **Understanding Institutional Trading Tactics:** Learning about how institutions manipulate the market can provide valuable insights into the formation and behavior of write blockers.

Resources for Further Learning


Technical Analysis is a continuous learning process. Mastering the identification and trading of write blockers takes time, practice, and a disciplined approach. Remember to always prioritize Risk Management and continuously refine your strategies based on market conditions.

Trading Strategies Support and Resistance Chart Patterns Candlestick Patterns Fibonacci Retracement Risk Management Market Analysis Order Flow Smart Money Concepts Trading Psychology

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