Level 3 · Lesson 5
Order Blocks
Institutional footprints on the chart. Find where the big players entered — and enter alongside them.
First — Why This Matters
🔍 Imagine a detective arriving at a crime scene.
The criminal is gone — you can't see them. But they left footprints. Those footprints tell you exactly where they stood, what they did, and where they went. If you follow the footprints, you can predict where they'll go next.
Order Blocks are the footprints institutions leave on charts. You can't see JP Morgan's order book. But you CAN see the last candle before a massive move — that candle is where they placed their orders. It's the "crime scene" of institutional buying or selling.
And here's the magic: institutions rarely fill their entire order in one go. They leave unfilled orders behind at the OB zone. When price returns to that zone later, those leftover orders get triggered — creating a bounce. That bounce is YOUR entry. You're literally entering at the same price as the institution.
🔍 REAL SCENARIO
GBP/USD at 1.2680. The last bearish candle before a 120-pip rally sits at 1.2650-1.2680. That's the bullish Order Block. Three days later, price pulls back to 1.2660 — right into the OB. A bullish engulfing candle forms. Traders who identified the OB bought at 1.2660 with a stop at 1.2645 (below the OB). Price rallied to 1.2780. 120 pips of profit, 15 pips of risk. That's 1:8 R:R — from one Order Block.
01 — The Two Types
Bullish vs Bearish Order Blocks
Bullish Order Block
The last BEARISH (red) candle before a strong impulsive move UP.
💡 In plain English: Think of it as the last moment sellers were in control. The very next candle, buyers absolutely CRUSHED them. That red candle is where the institution loaded up their buy orders — absorbing all the selling pressure and then some. It's counter-intuitive: a RED candle marks a BUYING zone. But that's exactly the point — the institution was buying while retail was selling.
How to identify: Find a strong move UP. Look at the candle JUST BEFORE it. Is it red/bearish? That's your bullish OB. The zone = open to close of that candle (or open to low for the refined version).
Bearish Order Block
The last BULLISH (green) candle before a strong impulsive move DOWN.
💡 In plain English: The last gasp of the buyers. After this green candle, sellers took over with overwhelming force. The institution was selling INTO the buying pressure of this candle — disguising their sell orders within a green candle. Again, counter-intuitive: a GREEN candle marks a SELLING zone.
How to identify: Find a strong move DOWN. Look at the candle JUST BEFORE it. Is it green/bullish? That's your bearish OB. When price rallies back to this zone, expect selling.
⚠️ The counter-intuitive rule: Bullish OB = red candle. Bearish OB = green candle. It feels backwards, but it makes sense: the institution enters AGAINST the current flow, absorbing the opposite side's orders. That's why the candle is the opposite colour — it represents the LAST moment of the old direction before the institution flipped everything.
02 — Mitigation
Returning to the Scene of the Crime
The institution couldn't fill everything on the first pass. Leftover orders wait in the OB zone. When price comes back, those orders activate — creating a bounce.
Step 1: OB Forms
Institution enters. Price moves impulsively away. The OB candle marks where they committed.
Step 2: Price Returns (Mitigates)
Price pulls back toward the OB zone. This is the "return to the crime scene." Unfilled institutional orders are waiting.
Step 3: The Bounce
When price touches the OB, those waiting orders trigger. Buying/selling pressure appears. Price bounces from the zone — YOUR entry. Stop below/above the OB. Target: the next liquidity level or opposing OB.
💡 Think of it like a restaurant: You ordered 10 dishes but the kitchen only delivered 7. Three dishes are still being prepared. When you go back to the restaurant (price returns to OB), those remaining 3 dishes get served (unfilled orders trigger). The restaurant didn't forget — they just needed time.
03 — Grading Your OBs
Not All Order Blocks Are Equal
Grade every OB before trading it. A+ setups get full risk. C setups get skipped.
04 — Trading Order Blocks
The Complete OB Trade
Identify the OB on the HTF
Find the last opposite-colour candle before a strong impulsive move. Mark the zone (open to close, or open to wick for refined OB).
Wait for price to return
Don't chase. The whole point of OB trading is WAITING for price to come back to you. Patience is non-negotiable.
Confirm on the LTF
When price enters the OB zone, drop to the 15m/5m chart. Look for a CHoCH or bullish engulfing candle confirming the bounce has started.
Enter with defined risk
Enter long (bullish OB) or short (bearish OB). Stop loss goes beyond the OB zone — below the low for bullish, above the high for bearish.
Target opposing liquidity
Your take-profit = the liquidity on the other side. For a bullish OB trade: target the BSL above (previous highs). For bearish: target the SSL below. OB → opposing liquidity = the full measured move.
05 — Read the Order Block
What Happened at This OB?
5 charts with OB zones marked. Identify the scenario.
06 — Knowledge Check
Order Block Quiz
1. An Order Block is:
2. In layman's terms, an Order Block is like:
3. A BULLISH Order Block is:
4. "Mitigation" means:
5. An Order Block is INVALIDATED when:
6. What makes an OB "strong" vs "weak"?
7. When trading a bullish OB, your stop loss should go:
8. An OB that overlaps with a Fair Value Gap (FVG) is considered:
🔒
Score 66%+ to unlock your Pro Certificate
Up Next