Lesson 58 of 69
Order blocks
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An order block is usually defined as the last opposing before a strong directional move — the final down candle before a sharp rally, or the final up candle before a sharp sell-off. The reasoning traders give is that large orders were being filled in that candle's range, and price may react there again if it returns.
A framework, not a fact
Nobody outside a bank can see where institutional orders actually sit. Order blocks are an inference many traders find useful, not verified data. Test them and judge them on your own results.
vs order blocks
| Bullish order block | Bearish order block | |
|---|---|---|
| Candle | Last down candle before a strong move up | Last up candle before a strong move down |
| Drawn from | That candle's open/close (some use high to low) | That candle's open/close (some use high to low) |
| Used as | A potential buy zone on a return | A potential sell zone on a return |
| Invalidated when | Price closes decisively below the block | Price closes decisively above the block |
How traders use them
- 1Find a strong impulsive move that also broke structure (a BOS) — the move matters more than the candle.
- 2Mark the last opposing candle at the origin of that move.
- 3Wait for price to return into that zone rather than chasing the move.
- 4Look for a reaction — a wick or a candle closing inside the zone — before entering.
- 5Place the beyond the far side of the block, then size the position from that stop distance, never the other way round.
Not every block holds
Plenty of order blocks are cut straight through. That is normal and it is exactly why the stop loss is defined before entry. A zone is a place to look for a trade, not a reason to hold a losing one.
How this connects to supply and demand
If order blocks feel familiar, that is because they are a refinement of the supply and demand zones from Module 5. Both say the same thing: price left this area quickly, so it may matter again. The difference is precision.
| Supply / demand zone | Order block | |
|---|---|---|
| Width | The whole consolidation area before the move | Usually a single candle's range |
| Entry | Anywhere in the zone | A tighter, more specific level |
| Stop distance | Wider — smaller position size | Tighter — larger position size for the same 1% risk |
| Trade-off | Fewer misses, worse reward-to-risk | Better reward-to-risk, more setups missed entirely |
Related lessons & next steps
Key takeaways
- An order block is the last opposing candle before an impulsive move away from a level.
- It marks an area where large orders were filled, so price often reacts when it returns.
- Untested blocks that caused a break of structure are the highest quality ones.
- An order block is a zone to watch for confirmation, not an automatic entry signal.
Knowledge check
3 quick questions — your best score is saved to your progress.
1. An order block is usually described as…
2. How do order blocks relate to supply and demand zones?
3. What invalidates a bullish order block?
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