The last candle before a strong move in the opposite direction, believed to represent institutional buying or selling activity. Price often returns to this zone before continuing.
What Is an Order Block?
An order block is a concept from institutional or "smart money" price action analysis. It refers to the last bearish (red) candle before a strong bullish move, or the last bullish (green) candle before a strong bearish move. The idea is that this candle represents the zone where large institutional orders were placed, creating the subsequent impulsive move.
How Order Blocks Work
Institutional traders often cannot fill their entire position at once due to the size of their orders. They buy or sell in portions. The order block marks the area where these initial orders were placed. When price returns to this zone later, the remaining unfilled orders get executed, causing the price to react again.
On EUR/USD, if a bullish order block (the last red candle before a strong rally) forms at 1.0850, traders expect the price to find Support when it returns to the 1.0850 zone on a pullback.
Trading with Order Blocks
Identify a strong impulsive move (a series of large candles in one direction). Find the last opposite-colored candle before that move. Mark its range as the order block zone. When price pulls back to this zone, look for a reaction (a reversal candle like a Pin Bar or Bullish Engulfing) and enter in the original impulse direction.
Place the stop below the order block (for bullish) or above it (for bearish). Order blocks work best when they align with other concepts like Support, Resistance, or Fibonacci levels. Not every order block produces a reaction, so confirmation at the zone is important.
Related Terms
Support
A price level where buying interest is strong enough to prevent further decline. The price tends to bounce upward when it reaches support.
Resistance
A price level where selling interest is strong enough to prevent further advance. The price tends to reverse downward when it reaches resistance.
Accumulation
A sideways price phase where informed buyers gradually build positions before a major upward move. It appears as a range or base after a decline.
Breakout
When the price moves decisively above a resistance level or a chart pattern boundary, signaling potential continuation in the breakout direction with increased momentum.
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