An order block (OB) is the zone where SMC traders believe large orders were placed just before a strong move. The idea: a large buyer couldn't fill their whole order at once, so some of it remains near the origin of the move, and price is likely to react when it returns there.
Defining an order block
A bullish order block is the last down-close candle before a strong move up that breaks structure. A bearish order block is the last up-close candle before a strong move down that breaks structure. You can mark the candle's full range (wick to wick) or just its body; the 50% level of the candle is called the mean threshold.
What makes an order block valid
Not every down candle before a rally is an order block. The strongest ones tick most of these boxes:
- It caused a break of structure. The move away from it closed beyond a meaningful swing point.
- The move was displacement. Large, fast candles, often leaving a fair value gap (chapter 10).
- It swept liquidity first. The block formed after price took out a nearby low (for a bullish OB).
- It is unmitigated. Price hasn't returned to it yet. The first return is usually the strongest reaction.
- It sits in discount (for buys) or premium (for sells) of the current range (chapter 9).
- It aligns with higher-timeframe bias.
| Bullish order block | Bearish order block | |
|---|---|---|
| Candle | Last down-close candle before the up move | Last up-close candle before the down move |
| Must cause | A bullish BOS or CHoCH | A bearish BOS or CHoCH |
| Entry idea | Buy on the return into the block | Sell on the return into the block |
| Stop | Below the block's low | Above the block's high |
| Invalid when | A candle body closes below the block | A candle body closes above the block |
Mitigation
When price comes back into an order block, SMC calls it mitigation: the large trader is, in theory, completing or protecting their position. Traders often enter with a limit order at the top of the block or the mean threshold, or wait for a lower-timeframe CHoCH inside the block for confirmation.
Worked example: a bullish order block
On the 1-hour chart, the last bearish candle before a rally on GBP/USD runs from 1.2652 (low) to 1.2671 (high). The rally closes above the previous swing high at 1.2705.
Order block: 1.2652–1.2671. Mean threshold: 1.2662.
A buy limit at 1.2671 with a stop below 1.2648 risks 23 pips. A target at the next buy-side liquidity, say 1.2760, offers 89 pips: nearly 4R.
Key takeaways
- A bullish order block is the last down-close candle before a strong move up that breaks structure; a bearish one is the mirror.
- The best blocks caused displacement and a BOS, often after sweeping liquidity, and are still unmitigated.
- Mark the full candle or the body; the 50% level is the mean threshold.
- A body close through the block invalidates it; the first return is usually the strongest.