Order blocks

What an order block is

An order block is a large chunk of orders placed at a particular price. It marks a level where institutional traders, the smart money, have shown interest, and because it represents a significant amount of buying or selling pressure it acts as a point of interest. A large block of buy orders at a price tends to act as support, because there is substantial interest in buying there, and traders watch these blocks for clues about where price goes next. On the chart, an order block is the footprint of an institutional order: the last bullish or bearish candle before an impulsive move. Some traders refine it further to the candle just before an inefficiency, an imbalance.

Who leaves the footprint

The composite operator, in Wyckoff's term, is the party accumulating or distributing and creating the schematic: the one responsible for a change in trend. They create conditions in the market that are unfavorable for the retail space, and institutions always leave a digital footprint.

Mitigation

When you catch this footprint, price usually comes back to the area. Mitigation is the process where institutions close out their orders at break even, and that return is where the entry is. In a bullish setup the entry is at the open of the last bearish candle, because it represents the last seller in the market, and the stop is under the bottom of the bullish candle that followed, the first buyer. One pip through the order block is invalidation: if price trades one pipette beyond the block, the trade is invalid.

Entering on an order block

• Look for the impulse move on the higher timeframe, the 4-hour or the daily, then scale down to the 1-hour or 15-minute chart for the entry.
• Find the last red or green candle before the impulse.
• A refined order block is the last candle that created an imbalance.
• Use Fibonacci for a better entry inside the block.
• Watch for spring moves and stop-run price action.
• Always trade the reaction to a break of structure; never predict. Guessing where the market will break structure, react off a block or run liquidity is gambling.

Mitigation more than once

Price will sometimes mitigate the same area more than once; the entry is still valid on the second visit, but the more times a block is mitigated the less valid it becomes, and by the third visit the trade is no longer favorable. Equal highs and equal lows are sometimes read as order flow, the pattern of institutional movement and mitigation taking place, rather than as a double top or bottom.

Replay the reaction

Click the candle that formed a block on the Trade Desk and step forward through the return: it shows whether price reacted inside the block or ran through it, and where your entry and stop sat against its edges.