What are Order Blocks?
Order Blocks are fundamental concepts in Inner Circle Trader (ICT) methodology that represent areas where large institutional orders have been placed. These zones act as significant support and resistance levels where price often reacts when revisited.
An Order Block is formed when price leaves a consolidation area with strong momentum, leaving behind unfilled orders. These unfilled orders create zones of liquidity that smart money will often return to test before continuing the overall trend.
Information
Types of Order Blocks
Bullish Order Blocks
Bullish Order Blocks form during uptrends when price consolidates before breaking higher. The last bearish candle before the bullish break often contains institutional buy orders that can provide support on retracements.
Bearish Order Blocks
Bearish Order Blocks form during downtrends when price consolidates before breaking lower. The last bullish candle before the bearish break often contains institutional sell orders that can provide resistance on retracements.
Identifying Valid Order Blocks
Not all consolidation areas become valid Order Blocks. Here are the key criteria for identification:
1. Strong Momentum Break
Price must leave the consolidation with strong momentum, indicating institutional participation.
2. Clean Break Structure
The break should be clean without multiple false breaks that would invalidate the Order Block.
3. Timeframe Confluence
Order Blocks work best when they align with higher timeframe structure and bias.
Trading Order Blocks
Trading Order Blocks requires patience and precise execution. The key is waiting for price to return to the Order Block zone and then looking for specific entry signals.
Entry Strategies
Market Structure Break
Wait for price to return to the Order Block and break the most recent higher low (bullish) or lower high (bearish) before entering.
Fair Value Gap Entry
Look for Fair Value Gaps within the Order Block zone that can provide precise entry opportunities with tight risk management.
Liquidity Sweep Entry
Enter after price sweeps liquidity below the Order Block (for bullish setups) or above (for bearish setups) and returns into the zone.
Risk Management
Proper risk management is crucial when trading Order Blocks. Here are key risk management principles:
Stop Loss Placement
Place stops beyond the opposite end of the Order Block with buffer for manipulation.
Position Sizing
Risk no more than 1-2% of account per trade, adjusting position size based on stop distance.
Advanced Order Block Concepts
Order Block Mitigation
Once an Order Block has been touched and price moves away, it's considered "mitigated." Mitigated Order Blocks often lose their significance and may not provide the same quality setups.
Breaker Blocks
When an Order Block is broken and price returns to test it from the opposite side, it becomes a "Breaker Block." These often provide strong reaction points in the opposite direction.
Refinement Zones
Within larger Order Blocks, look for smaller timeframe Order Blocks or Fair Value Gaps that can provide more precise entry opportunities with better risk-to-reward ratios.
Warning
Common Mistakes to Avoid
Trading Every Order Block
Not all Order Blocks are created equal. Focus on high-probability setups that align with higher timeframe bias.
Ignoring Market Context
Always consider the broader market context and don't trade Order Blocks against major support/resistance levels.
Poor Risk Management
Don't risk more than you can afford to lose, and always use proper position sizing based on your stop loss distance.
Practice and Development
Mastering Order Block trading takes time and consistent practice. Focus on these key areas for development:
Chart Analysis
Spend time identifying Order Blocks on different timeframes and instruments.
Demo Trading
Practice entry and exit strategies without risking real capital.
Trade Review
Regularly review your trades to identify patterns and areas for improvement.