What is an Order Block?
💡 Definition
An Order Block (OB) is the last bullish or bearish candle before a strong impulsive move in the opposite direction. It represents a zone where institutional traders (Smart Money) placed large orders, creating significant support or resistance.
In Smart Money Concepts (SMC), Order Blocks are considered footprints of institutional activity. These zones often act as magnets where price returns to collect liquidity or fill pending orders before continuing in the direction of the trend.
Visual Representation
Bullish Order Block Example
The highlighted bearish candle is the Order Block where institutions placed buy orders before the strong upward move
Types of Order Blocks
🟢 Bullish Order Block
The last bearish candle before a strong bullish impulse move. This zone represents where Smart Money accumulated long positions. Price often returns here for optimal buy entries.
🔴 Bearish Order Block
The last bullish candle before a strong bearish impulse move. This zone represents where Smart Money distributed short positions. Price often returns here for optimal sell entries.
Key Characteristics
What Makes a Valid Order Block?
- Strong Impulse Move: The reversal from the OB must be significant and impulsive, not gradual
- Break of Structure: The move should break previous market structure (swing highs/lows)
- Volume Confirmation: Higher volume on the impulse move validates institutional presence
- Unmitigated Zone: Fresh Order Blocks that haven't been tested are more powerful
- Timeframe Significance: Higher timeframe OBs (4H, Daily, Weekly) carry more weight
Trading Strategy
- Identification: Look for the last opposite-colored candle before a strong impulsive move that breaks structure
- Entry Strategy: Wait for price to return to the OB zone, look for confirmation (rejection wicks, engulfing patterns)
- Refinement Zone: Focus on the top 25-50% of a bullish OB or bottom 25-50% of a bearish OB for precise entries
- Confluence Factors: Combine with FVGs, liquidity sweeps, premium/discount zones, and Fibonacci levels
- Multiple Timeframes: Identify OBs on higher timeframes, execute on lower timeframes for better precision
- Stop Loss Placement: Place stops just beyond the Order Block to allow for wicks and false breaks
- OB Mitigation: Once price fully enters an OB zone, it's considered "mitigated" and loses strength for future trades
Why Order Blocks Matter
Order Blocks represent areas where institutional traders have unfinished business. When Smart Money places large orders, they cannot fill everything at once without moving the market significantly. They strategically leave pending orders in these zones to:
✦ Add to existing positions at favorable prices
✦ Create support/resistance where retail traders get trapped
✦ Defend key levels where their stop losses or take profits reside
✦ Engineer liquidity sweeps before the true directional move
Understanding Order Blocks allows retail traders to align with institutional flow rather than trade against it, significantly improving win rates and risk-reward ratios.
Common Mistakes to Avoid
- Trading Every OB: Not all Order Blocks are equal - focus on those with strong confluence
- Ignoring Market Structure: Only trade OBs that align with the overall market trend and structure
- Poor Risk Management: Even the best OB setups can fail - always use proper stop losses
- Expecting Exact Touches: Price may respect an OB with wicks or come close without touching - be flexible
- Overtrading Lower Timeframes: Lower timeframe OBs are less reliable - prioritize 4H and above