Order blocks are one of the most powerful concepts in modern institutional trading. They represent the exact zones where banks, hedge funds, and smart money place large buy or sell orders before a major price move.
Understanding order blocks allows traders to predict reversals, identify high-probability entry zones, and avoid false breakouts that trap retail traders every day.
What Is an Order Block?
An order block (OB) is the last bullish or bearish candle before a strong impulsive move that breaks structure (BOS). It shows the true origin of institutional orders.
The two main types of OB:
- Bullish Order Block (B-OB): last down candle before strong bullish move.
- Bearish Order Block (S-OB): last up candle before strong bearish move.
These candles represent accumulation (for buys) or distribution (for sells). They act as powerful support/resistance zones.
Why Order Blocks Work
Institutions cannot execute massive orders at once. They build positions gradually using engineered liquidity. Order blocks show the exact area where:
- Smart money enters the market
- Big orders were executed
- Price reversed sharply
- Imbalance/FVG was created
This leaves a “footprint” on the chart that retail traders can use.
How to Identify a Valid Order Block
Not every candle is an OB. A valid OB must fulfill these conditions:
1. The candle must be the final opposite candle before an impulsive move
Strong imbalance or long-range displacement must follow.
2. The move must break market structure (BOS)
Without a structure break, the zone is weak.
3. The zone must be clean, not messy
Tight consolidation or choppy candles make it invalid.
4. Prefer OBs with FVG (Fair Value Gap)
FVG indicates inefficient pricing — very strong confirmation.
How to Trade a Bullish Order Block
Conditions:
- Down candle before an explosive bullish move
- BOS in bullish direction
- Retracement back to OB
Entry:
- Set buy limit at 50% of the OB
- SL below the OB wick
- TP target opposite liquidity
How to Trade a Bearish Order Block
Conditions:
- Up candle before a strong bearish push
- Bearish BOS
- Retracement into OB zone
Entry:
- Sell limit at 50% of OB
- SL above the wick
- TP target previous lows or liquidity pools
Advanced Order Block Concepts
1. Mitigation Blocks
A mitigation block happens when price returns to an older OB to “balance” previous orders. These are excellent high-timeframe entries.
2. Flip Zone (OB → Opposite OB)
When a bullish OB fails and price breaks lower, that same zone becomes a bearish OB (and vice versa).
3. Multi-Timeframe OB Alignment
The strongest trades happen when HTF OB aligns with LTF OB entries.
Most Common OB Mistakes
- Trading OB without structure break
- Using OB inside consolidation
- Entering before sweep/liquidity grab
- Placing SL inside the OB
Conclusion
Order blocks reveal the true intentions of institutional traders and act as powerful reversal and continuation zones. Mastering OB analysis will significantly improve your accuracy and help you understand where major market moves originate.
Continue reading: Market Liquidity Zones Guide