What is an Order Block in Forex Trading?

Q: What is an Order Block in Forex Trading?

An Order Block is a price zone where large institutional traders (banks, hedge funds) have placed significant buy or sell orders. These zones act as strong support or resistance because "smart money" is positioned there, often causing price to respect these levels on retests.

Understanding Order Blocks in Forex

An Order Block is a specific price zone on a chart where large institutional traders (banks, hedge funds) have placed significant buy or sell orders. These zones often act as strong support or resistance because "smart money" is positioned there.

How to Identify Order Blocks

Order blocks appear as:

Bullish Order Block: The last down-candle before a strong upward move
Bearish Order Block: The last up-candle before a strong downward move

The theory is that institutional traders accumulated (bought) or distributed (sold) heavily during this candle, creating an imbalance that causes the subsequent strong move.

Why Order Blocks Work

Order blocks are powerful because:

Institutional footprint - Large players leave orders in these zones
Unfilled orders - Banks may have limit orders still resting at these levels
Self-fulfilling - Many traders watch these zones, adding to their significance
High probability zones - Price often respects these areas on retests

Trading Order Blocks

Common order block strategies:

Retest Entry

Wait for price to return to the order block zone, then enter in the direction of the institutional move (the impulse that followed the block)

Confluence with FVG

Order blocks combined with Fair Value Gaps create high-probability trading zones

Timeframe Selection

Higher timeframe order blocks (4H, Daily, Weekly) are more significant and reliable

Order Block Characteristics

Strong order blocks typically have:

Strong impulse move - The reaction away from the block should be decisive
Clean structure - The block candle should be clear and obvious
First touch - The first retest of an order block is usually the strongest
Volume confirmation - High volume during the impulse suggests institutional activity

Order Block vs Support/Resistance

Order blocks differ from traditional support/resistance:

More specific - Identified as a single candle, not a general area
Directional bias - Assumes continuation in the impulse direction
One-time use - Often "consumed" after first successful retest
Institutional focus - Based on smart money behavior, not retail patterns

Practical Example

GBP/USD is ranging. Suddenly, a strong bullish impulse breaks resistance. The last bearish candle before this impulse (at 1.2650) is your bullish order block. When price retraces back to 1.2650 next week, you enter long with stop below 1.2640, targeting the recent high. The institutional buyers who created the initial impulse are likely defending this zone.