What is an Order Block in Trading?

Order Blocks are one of the most foundational concepts in Smart Money Concepts (SMC) and ICT trading. They represent the precise areas where large financial institutions, banks, and hedge funds have accumulated massive positions. By identifying these zones, retail traders can trade alongside the "smart money" instead of against it.

The Definition of an Order Block

Simply put, a Bullish Order Block is the last down-close candle before a strong impulsive move upwards that breaks market structure. Conversely, a Bearish Order Block is the last up-close candle before a strong impulsive move downwards.

When institutions enter the market, their orders are so large they cannot be filled all at once without causing massive slippage. They split their orders, often leaving a portion unfilled at the origin of the move. When price eventually returns to this origin—the Order Block—those remaining orders are triggered, causing price to violently reject the zone.

How to Trade an Order Block

Not all Order Blocks are created equal. The highest probability Order Blocks share two distinct characteristics:

1. They sweep liquidity first: The best Order Blocks are formed after a Liquidity Sweep, trapping retail traders on the wrong side of the market.
2. They are accompanied by an FVG: The impulsive move away from the Order Block must leave a Fair Value Gap. This confirms the displacement and institutional involvement.

When price returns to an Order Block that meets these criteria, traders can enter their positions with tight stop losses placed just below (or above) the Order Block candle itself, resulting in excellent risk-to-reward ratios.

Related Reading:

To master Order Blocks, you must master the imbalances they leave behind. Read our guide on What is a Fair Value Gap? to complete your strategy.