Support and resistance are where retail traders get trapped. Order Blocks are where institutions ACTUALLY transact. Stop trading lines drawn from old highs—start trading the footprint of billion-dollar orders. This is where price WILL defend because institutions MUST defend it.
Welcome to Lesson 52
You've mastered Market Structure (BOS/MSS), Liquidity Sweeps (stop hunts), and Fair Value Gaps (price imbalances). Now you need the CORE concept that ties everything together: Order Blocks (OB).
The Critical Question: "I see a Market Structure Shift. I know the trend changed. But WHERE exactly should I enter? What's my precise entry level?"
The Answer: The Order Block—the exact candle where the institution loaded their position before the explosive move. This is your entry zone.
Why Order Blocks Matter More Than Support/Resistance:
Support/Resistance = where price WAS
Order Blocks = where institutions ARE (pending orders)
Support/Resistance breaks constantly (liquidity grab)
Order Blocks hold consistently (institutional defense)
This lesson teaches you to identify the EXACT candle where institutions transacted, understand WHY they'll defend that zone, wait patiently for price to RETURN, and enter with SURGICAL precision.
Lesson Chapters
1Chapter 1: What is an Order Block? — The Institutional Context⏱️ ~4 min
Before identifying Order Blocks on charts, you must understand what they represent at the institutional level.
🏦 Why Institutions Can't Just 'Market Buy'
The Size Challenge:
Institution needs to BUY 2 billion EUR/USD at current price 1.0900, but normal order book only has ~50 million EUR available.
If They Use Market Order:
- Would exhaust sellers from 1.0900 to 1.0935
- Average fill: 1.0918
- Slippage: 18 pips = $3.6 million wasted
- Unacceptable
The Institutional Solution - Three Phases:
Phase 1: Accumulation (Creating the Order Block)
- SELL aggressively to push price down to 1.0895
- Sweep retail Stop Losses (creates liquidity)
- BUY from those triggered SLs
- Fill first 500M EUR at 1.0895-1.0900
- Final down candle = ORDER BLOCK
Phase 2: Displacement (The Impulse)
- Institution stops selling
- Price EXPLODES upward (24-pip candle)
- Creates BOS + Fair Value Gap
- Confirms OB was institutional
Phase 3: Mitigation (The Return)
- Institution filled 500M, still needs 1.5B EUR
- LEAVE PENDING BUY ORDERS at the Order Block
- When price returns to 1.0895-1.0905
- Remaining orders activate = YOUR entry
🎯 Order Block vs. Traditional Concepts
vs. Support/Resistance:
| Aspect | Support/Resistance | Order Block |
|---|---|---|
| Based on | Price history | Order execution |
| Reliability | Low (often swept) | High (pending orders) |
| Precision | Approximate zone | Exact wick-to-wick |
| SL placement | Arbitrary | Objective |
vs. Supply/Demand:
- S/D: 30-50 pips wide (approximate)
- OB: 10-20 pips (specific candle)
- OB = surgical precision
The Professional Hierarchy:
- Simple S/R lines (retail level)
- Supply/Demand zones (better)
- Fibonacci levels (mathematical)
- Order Blocks (institutional) ← Use this
- OB + FVG + Liquidity Sweep (maximum confluence)
Critical Insight: Order Blocks aren't predictions—they're FACTS. The candle exists. The displacement happened. The institution loaded there. When price returns, they WILL defend it (pending orders activate). Your edge is trading documented institutional positions.
2Chapter 2: Anatomy of a Bullish Order Block — Buy Signal⏱️ ~5 min
A Bullish Order Block signals where institutions accumulated buy orders before an upward displacement. This is your BUY zone.
📈 The 4-Step Identification Process
Step 1: Find the Final Down Candle
- Bearish candle immediately BEFORE strong upward move
- Often the LAST red candle in downtrend/pullback
- This is where institution was BUYING
Step 2: Confirm Liquidity Sweep (Powerful but Optional)
- Does the final down candle WICK below recent support?
- Sweeps previous swing low?
- Confirms SSL (Sell-Side Liquidity) grab
Example: Previous low 1.0900, OB wick sweeps to 1.0893 ✅
Step 3: Confirm Impulsive Breakout
- Next candles must EXPLODE upward
- Must break previous structure (BOS)
- Creates Fair Value Gap (FVG)
Valid: 26-pip bullish candle + FVG created ✅
Invalid: 3-pip weak move, no BOS ❌
Step 4: Mark the Order Block Zone
- Use ENTIRE range of final down candle (wick to wick)
- Calculate 50% equilibrium = entry target
- Mark boundaries for SL placement
1.0905 ═══ OB Upper Boundary
1.0899 ─── 50% Equilibrium ← ENTRY
1.0893 ═══ OB Lower Boundary ← SL below this
📊 Complete Bullish OB Trade Example
EUR/USD H4 Setup:
- Swing Low: 1.0900 (tested twice)
- Final down candle: 1.0888-1.0908 (sweeps below 1.0900) ✅
- Displacement: Explosive 34-pip bullish candle ✅
- FVG created: 15-pip gap ✅
- OB confirmed at 1.0888-1.0908
Waiting for Mitigation:
- Price rallies to 1.0985
- Pulls back to OB zone
- Limit order filled at 1.0898 (50%)
Risk Management:
- Entry: 1.0898
- SL: 1.0883 (5 pips below OB low)
- Risk: 15 pips
- Lot Size: 0.67 lots (1% of $10k account)
Targets:
- T1: 1.0965 (previous high) = 67 pips = 1:4.47 R:R
- T2: 1.1000 (major resistance) = 102 pips = 1:6.80 R:R
Result:
- T1 hit: +$224 (50% closed)
- T2 hit: +$204 (30% closed)
- Trail hit: +$136 (20% closed)
- Total: +$564 = 5.64% return
Why It Worked: Institution HAD to defend OB (unfilled orders).
3Chapter 3: Anatomy of a Bearish Order Block — Sell Signal⏱️ ~4 min
A Bearish Order Block signals where institutions accumulated sell orders before a downward displacement. This is your SELL zone.
📉 Identifying Bearish Order Blocks
The Pattern:
- Final UP candle before aggressive downward move
- Often LAST green candle in uptrend/rally
- This is where institution was SELLING
Key Components:
1. Final Up Candle:
- Bullish candle (close higher than open)
- Immediately before strong downward displacement
- Institution absorbed all buying here
2. Liquidity Sweep (BSL):
- Final up candle WICKS above recent resistance?
- Sweeps previous swing high?
- Confirms Buy-Side Liquidity grab
Example: Previous high 1.0900, OB wick sweeps to 1.0907 ✅
3. Impulsive Breakdown:
- Next candles DROP aggressively (30+ pips)
- Break previous structure (BOS/MSS)
- Create Fair Value Gap
4. Mark the Zone:
1.0907 ═══ OB Upper Boundary ← SL above this
1.0901 ─── 50% Equilibrium ← ENTRY
1.0895 ═══ OB Lower Boundary
📊 Complete Bearish OB Trade Example
GBP/USD H1 Setup:
- Swing High: 1.2650 (resistance tested)
- Final up candle: 1.2645-1.2662 (sweeps above 1.2650) ✅
- Displacement: Massive 41-pip bearish candle ✅
- FVG created: 13-pip gap ✅
- OB confirmed at 1.2645-1.2662
Waiting for Mitigation:
- Price drops to 1.2550
- Rallies back to OB zone
- Limit order filled at 1.2654 (50%)
Risk Management:
- Entry: 1.2654
- SL: 1.2667 (5 pips above OB high)
- Risk: 13 pips
- Lot Size: 0.77 lots
Targets:
- T1: 1.2580 = 74 pips = 1:5.69 R:R
- T2: 1.2550 = 104 pips = 1:8.00 R:R
Result:
- T1 hit: +$285
- T2 hit: +$240
- Trail: +$84
- Total: +$609 = 6.09% return
Remember: Bearish OB = last UP candle before DOWN displacement. Bullish OB = last DOWN candle before UP displacement. The "final opposite direction candle" is where institutions loaded their position.
4Chapter 4: Mitigation & Validation — High-Probability Setups⏱️ ~5 min
Not all Order Blocks are equal. High-probability setups require validation through confluence.
🔄 Understanding Mitigation
Mitigation Definition:
"Price RETURNING to the Order Block zone after displacement, allowing institution to fill remaining pending orders."
Why It Happens:
- Institution wanted 2B EUR, only filled 600M initially
- Still needs 1.4B EUR
- LEFT PENDING ORDERS at OB
- When price returns = orders activate = bounce
Mitigation Types:
First Touch (Highest Probability):
- OB created, price returns for FIRST time
- Institution's orders STILL THERE
- = 70-80% win rate
- Take full 1% risk
Second Touch (Moderate):
- Some orders filled, some remain
- = 55-65% win rate
- 0.5% risk or need confirmation
Third+ Touch (Low):
- Most orders FILLED
- = 40-50% win rate
- Skip or require strong LTF confirmation
Focus on FIRST touch mitigations.
✅ Order Block Validation Checklist
Criterion 1: Market Structure Break
- Did displacement break structure (BOS/MSS)?
- Example: OB → displacement to 1.0935, previous high 1.0910
- Broke structure? YES ✅ = VALID
Criterion 2: Fair Value Gap Created
- Did displacement create FVG?
- Example: Gap from 1.0905-1.0922 (17 pips)
- FVG present? YES ✅ = Strong imbalance
Criterion 3: Liquidity Sweep
- Did OB candle sweep obvious liquidity?
- Bullish OB: Swept SSL below support?
- Bearish OB: Swept BSL above resistance?
- Sweep confirmed? YES ✅ = High quality
Criterion 4: HTF Alignment
- Is OB aligned with HTF trend?
- Daily uptrend + H4 bullish OB?
- Aligned? YES ✅ = Higher probability
The Perfect OB (All 4):
✅ Broke structure
✅ Created FVG
✅ Swept liquidity
✅ HTF alignment
= A+ ORDER BLOCK (70-80% win rate, full 1% risk)
Acceptable OB (2-3 Criteria):
✅ Broke structure
✅ Created FVG
❌ No sweep
❌ Counter-trend
= B/C ORDER BLOCK (50-60% win rate, 0.5% risk or skip)
Professional Standard: Only trade A+ and B setups. Wait patiently for OBs with multiple confluence factors. Quality over quantity wins in OB trading.
5Chapter 5: Entry & Risk Management — Surgical Precision⏱️ ~4 min
The precision of Order Block trading comes from surgical entry and Stop Loss placement.
🎯 Three Entry Methods
Method 1: Limit Order at 50% (Standard)
- Place limit at OB 50% equilibrium
- Set-and-forget
- Professional approach
Pros: Best R:R, no emotion, optimal entry
Cons: ~70% fill rate, might miss
Method 2: Limit at Upper/Lower Boundary (Conservative)
- Enter at first touch of OB zone
- Higher fill rate (~85%)
Pros: Rarely miss trade, earlier entry
Cons: Worse entry price, lower R:R
Method 3: LTF Confirmation (Active)
- Drop to M15/M5
- Wait for MSS confirmation inside OB
- Enter after seeing defense
Pros: Maximum confirmation, highest confidence
Cons: Requires screen time, worse entry, can miss
Recommendation:
- Beginners: Method 3 (see it happen)
- Intermediate: Method 1 (professional standard)
- Advanced: Scaled entry (40% at boundary, 60% at 50%)
🛡️ Stop Loss Placement Rules
Bullish OB:
- Place SL 3-10 pips BELOW OB wick low
- Example: OB low 1.0890 → SL at 1.0885 (5-pip buffer)
Bearish OB:
- Place SL 3-10 pips ABOVE OB wick high
- Example: OB high 1.0907 → SL at 1.0912 (5-pip buffer)
Buffer Guidelines:
- 3 pips: Daily/H4, low volatility
- 5 pips: H4/H1, normal volatility (most common)
- 10 pips: H1/M15, high volatility, news events
NEVER:
- Place SL inside OB zone
- Use arbitrary pip counts
- Move SL closer after entry
Why This Works:
- OB boundary = where institution loaded
- Beyond this = setup invalidated
- Objective structural invalidation
💰 Position Sizing Advantage
The Edge: Order Blocks = TIGHT Stop Losses = LARGER position sizes for same 1% risk
Example: Tight 12.5-pip OB
- Account: $10,000, Risk: 1% = $100
- Lot Size = $100 ÷ (12.5 × $10) = 0.80 lots
- Target: 77.5 pips = 1:6.20 R:R
- Potential: +$620
Example: Wide 25-pip OB
- Same account and risk
- Lot Size = $100 ÷ (25 × $10) = 0.40 lots
- Target: 80 pips = 1:3.20 R:R
- Potential: +$320
The Principle: Tighter OB = Smaller SL = Larger lot size = Better R:R
Prefer: Small, clean OBs (10-20 pips) with clear displacement.
6Chapter 6: Summary, Quiz & Next Steps⏱️ ~5 min
Summary & Conclusion
Order Blocks are the most important concept in Smart Money Concepts trading.
Key Principles (0/15)
Professional Truth: Order Blocks aren't support/resistance—they're pending order zones. When retail sees "price bounced at 1.0900," SMC traders see "institution has $2 billion in buy orders at 1.0900." This is the edge.
Quiz
A Bearish Order Block is specifically identified as:
The single biggest benefit of using an Order Block for your trade entry (compared to traditional support/resistance) is:
What critical market event must occur immediately AFTER an Order Block is formed to validate its importance and tradability?
When price returns to the Order Block zone after the initial displacement, this process is technically known as:
Call to Action
👣 Stop trading ghosts of old support. Start trading institutional footprints.
Order Blocks are the EXACT zones where billions of dollars in pending orders sit. When price returns, those orders activate. This isn't hope—it's order book mechanics.
Your Action Steps:
- Find recent BOS or MSS on H4/Daily chart
- Identify the final candle before displacement
- Validate the OB (structure break + FVG + sweep + HTF alignment)
- Mark the zone (wick-to-wick), calculate 50%
- Set limit order at 50% equilibrium
- SL beyond wick (5 pips buffer)
- Target opposite liquidity or next major level
For the next 30 days, ONLY trade validated Order Block mitigations.
Call to Action
Manage a book, not a bet. Make correlation checks and risk caps part of your routine.
Deriv
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XM
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Remember: Retail trades hope and levels. Institutions trade pending orders and zones. Order Blocks are where the pending orders sit. Trade the orders, not the hope.
Identify. Validate. Wait. Execute. Repeat.
Prerequisites
Before studying this lesson, ensure you've mastered these foundational concepts:
Ready to trade institutional footprints instead of retail levels? Master Order Blocks and never chase support/resistance again.
Ready to continue?
Mark this lesson as complete to track your progress.