**Order Blocks (OBs)** are one of the most powerful concepts in 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.
Mastering order blocks allows traders to predict high-probability reversals and identify sniper-like entry zones, avoiding false breakouts that typically trap retail traders.
What Exactly Is an Order Block?
An Order Block is the **last opposing candle** before a strong impulsive price movement that breaks market structure (BOS). It is considered the true *origin* or *source* of the institutional order flow.
These blocks (candles) represent the accumulation (for buys) or distribution (for sells) phases by large players. Once price returns to this zone, it acts as an extremely powerful magnet and a high-probability reversal point.
The Two Main Types of Order Blocks:
- Bullish Order Block (B-OB): The last *down* (bearish) candle before a strong move that breaks structure to the upside.
- Bearish Order Block (S-OB): The last *up* (bullish) candle before a strong move that breaks structure to the downside.
How to Identify a Valid Order Block (OB Confirmation)
Not every opposing candle is an OB. A valid, high-probability Order Block must fulfill these conditions:
Bullish OB Formation and Break of Structure (BOS)
In short, if the move following the OB does not break structure (BOS), the zone is usually weak and invalid.
Furthermore, a strong OB is often accompanied by a **Fair Value Gap (FVG)**, indicating extreme inefficiency in pricing, which serves as a massive magnet for future price returns.
How to Trade an Order Block (Step-by-Step)
The goal is to wait for the price to return to the OB zone, which serves as your high-probability entry point for a continuation or reversal of the trend.
Buy Setup Using Bullish Order Block (B-OB)
Wait for the price to sweep liquidity (stop-hunt) and break structure to the upside. Then, anticipate the retracement back to the B-OB for entry.
- **Entry:** Set a Buy Limit at the **50% mark** (Equilibrium) of the B-OB for best Risk-to-Reward.
- **SL:** Place Stop Loss safely below the OB wick.
- **TP:** Target the next major liquidity high or the next Resistance Zone.
Sell Setup Using Bearish Order Block (S-OB)
Wait for the price to sweep liquidity and break structure to the downside. Then, anticipate the retracement back to the S-OB for entry.
- **Entry:** Set a Sell Limit at the **50% mark** of the S-OB.
- **SL:** Place Stop Loss safely above the OB wick.
- **TP:** Target the next major liquidity low or the next Pivot Support level.
Use the Lot Size Calculator to ensure your SL placement adheres to your 1-2% risk rule.
Execution: OB Mitigation and Entry Point
Advanced Order Block Concepts
For high-level accuracy, consider these advanced concepts:
1. Mitigation Blocks
A mitigation block occurs when price returns to an older OB to "balance" previous orders. These are typically powerful high-timeframe entries.
2. Flip Zone (S/R Flip)
When a Bullish OB fails and price breaks lower, that same zone can often act as a new **Bearish Order Block** (and vice versa). This is a strong S/R Flip concept.
3. Multi-Timeframe OB Alignment
The strongest trades occur when a Higher Timeframe (HTF) Order Block aligns with a Lower Timeframe (LTF) OB or a Fair Value Gap (FVG) within the OB zone itself. Track the HTF trend using the Realtime Market Dashboard.
Most Common Order Block Mistakes
- Trading OB without a confirmed **structure break** (BOS).
- Using OBs inside consolidation or **ranging markets**.
- Entering before the price sweeps liquidity or completes the Stop Hunt.
- Placing Stop Loss **inside** the OB instead of safely below the OB wick.
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 entry accuracy, helping you understand where major market moves originate and reducing the need for arbitrary indicators.
Continue reading: Market Liquidity Zones Guide
