Order Blocks Explained

What is an order block?

An order block is a candle, or a short group of candles, that marks where large orders are thought to have been placed before price moved hard in one direction. Traders mark it after the fact. The theory is that big buyers or sellers did not fill all their orders at once, so price may come back to that zone.

The theory is hard to prove, since we cannot see anyone's orders on a chart. What we can see is a repeatable pattern: a candle, followed by a strong move that breaks structure. In practice, that pattern is the order block. If you are searching for "what are order blocks", that is the working answer.

Bullish and bearish order blocks

Bullish order block. The last down candle before a strong move up that breaks a recent swing high. Traders expect the zone to act as support if price returns.

Bearish order block. The last up candle before a strong move down that breaks a recent swing low. Traders expect the zone to act as resistance if price returns.

The zone is usually the candle's full range, from low to high. Some traders use only the body, from open to close. Pick one and apply it consistently.

How to find an order block

Work from the move, not from the candle.

1. Find a strong move that breaks structure. This is a Break of Structure or a Change of Character.
2. Walk back to where the move started.
3. Mark the last opposite-colour candle before the move.
4. Draw the zone from that candle's low to its high.
5. Wait to see if price returns. If price closes through the zone, drop it.

Stronger blocks, according to most traders, have a clear impulsive move away from them, form near a key level, and have not been touched since. Each coin page lists key levels you can compare against, for example the Bitcoin market structure page.

Order block example

The prices here are made up to show the pattern.

BTC is falling on the 4h chart. A down candle runs from 59,800 (high) to 59,200 (low). The next candles rise hard, closing at 61,500, and that move takes out the last swing high at 61,000. That is a break of structure to the upside. The down candle between 59,200 and 59,800 is the bullish order block.

If price returns to 59,800 and holds, a trader may enter long with a stop below 59,200. The risk is 600 points from the top of the zone, about 1.0%. If price closes below 59,200, the order block has failed and the stop is hit.

How traders use order blocks

Order block trading usually follows a pattern.

• Find the direction with market structure on a higher time frame.
• Mark order blocks in that direction on the same or a lower time frame.
• Wait for price to come back to the zone. Do not chase the move that created it.
• Look for a reaction, such as a rejection candle or a small Change of Character on a lower chart.
• Place the stop beyond the far side of the block and size the trade from it with the position size calculator.

Nothing here guarantees a bounce. Price often passes through an order block, or reverses before it gets there.

Order blocks and breaker blocks

A breaker block is an order block that failed. A bullish order block that price closes below can turn into a bearish breaker block, which traders then watch as resistance. The idea is close to an inverse fair value gap. We mention breaker blocks so you recognise the term. A separate guide may follow.

Order blocks vs fair value gaps

Both are zones marked from strong moves. An order block is a candle before the move. A fair value gap is the gap left inside the move. They often show up together, and many traders look for an order block that has a fair value gap right after it.