Order Block Trading: The Last Candle Before The Move

An order block is the last candle that opposes the move that follows. Bullish order block: the last red candle before a sharp rally. Bearish order block: the last green candle before a sharp drop. The theory is that institutions placed large orders in that candle's range, and the move that followed was their absorption.

When price returns to that zone later, the remaining institutional interest tends to defend it. The block becomes support or resistance. Traders watch for entries on the retest.

Bullish Order Block Setup

• Find a sharp upward move on the chart. Multiple candles closing higher with strong bodies.
• Identify the last bearish candle before the move started.
• That candle's range is the bullish order block. Highlight the body from open to close.
• When price pulls back to this zone, watch for a reversal entry long.

Bearish Order Block Setup

• Find a sharp downward move on the chart. Multiple candles closing lower with strong bodies.
• Identify the last bullish candle before the move started.
• That candle's range is the bearish order block.
• When price rallies back to this zone, watch for a reversal entry short.

What Validates An Order Block

Not every candle is a valid order block. The move that follows has to be impulsive. Big bodies. Few wicks. Breaks recent structure. If the move after the candle is weak or stalls quickly, the block carries less weight.

Higher timeframe order blocks matter more than lower timeframe ones. A daily bullish order block at major support is a significant zone. A five minute order block in the middle of nowhere is noise.

The Entry

I wait for price to enter the order block zone. Then I watch for confirmation. Reversal candle inside the zone. Wick rejection. Smaller timeframe bullish structure on a bearish order block retest.

Aggressive entry takes the limit order at the block edge. Conservative entry waits for the reversal candle to close before entering. I prefer the conservative approach. Limit orders into untested levels get filled in the bad ones too.

The Stop

Stop sits beyond the order block. For a bullish block, stop below the wick low of the block candle. For a bearish block, stop above the wick high. If price closes through the entire order block, the level failed. The thesis is broken.

The Target

First target is the recent swing in the direction of the original impulse. Bullish order block holds, target the prior swing high. Bearish order block rejects, target the prior swing low.

For higher timeframe blocks, the target can be the prior major high or low. Multi day or multi week runs are possible from strong order block entries.

What Kills Order Block Trades

• Trading order blocks in the wrong timeframe. Five minute blocks fail more than they work.
• Drawing too many blocks. If everything is an order block, nothing is.
• Trading against major trend. Order blocks work better when aligned with higher timeframe trend.
• Not waiting for confirmation. Limit orders into untested zones catch the bad fills.

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