An order block is a concept popularized by Inner Circle Trader (ICT) and Smart Money Concepts (SMC) frameworks: the last bullish candle before a sharp bearish move (a bearish order block), or the last bearish candle before a sharp bullish move (a bullish order block). The candle is treated as a zone where institutional orders rested before the move began, and is used as a potential support or resistance area when price returns.
Critically, an order block is not just any candle. The framework requires (1) a sharp displacement move away from the candle, ideally creating a fair value gap, and (2) a "break of structure" — price taking out a prior swing high or low — to confirm that the move was institutionally driven rather than noise.
Worked example
EUR/USD prints a small green candle at 1.0820, then in the next two candles drops 40 pips through 1.0780 (the prior swing low), creating a fair value gap. The green candle at 1.0820 is now a bearish order block. Two days later price retraces back to 1.0820. An ICT trader shorts at the 50% mark of that candle's body, with a stop above the candle high, targeting a return to 1.0780 or beyond.
Why it matters
Order blocks give traders a precise, repeatable zone to plan entries — narrower than a traditional support/resistance level. Whether or not the institutional-flow narrative is literally true, the levels often act as inflection points because many ICT/SMC traders are watching the same zones. See ICT / SMC for the broader framework.
Common pitfalls
- Marking every reversal candle as an order block. Without displacement and break of structure, it's just a candle.
- Using order blocks on low-timeframe charts (M1, M5) where noise dominates and validity is poor.
- Ignoring higher-timeframe context — a bullish M15 order block inside a daily downtrend is a low-probability long.
- Drawing the zone wrong. ICT typically uses the candle body (open-to-close), not the wicks.