Order blocks in Forex trading refer to specific price areas where big market players, such as banks and institutional traders, place large buy or sell orders.
These zones can heavily influence price movements because they represent strong supply or demand levels.
On charts, order blocks often show up as patterns where newer candlesticks engulf earlier ones—hinting at a potential trend reversal.
This guide breaks down what order blocks are, how they work, and how traders can use them effectively as part of their strategy.
Major Takeaways
| Main Thesis | Insights and Key Points |
|---|---|
| Definition | Order blocks are price zones where institutional traders execute large buy or sell orders. |
| How It Works | These big players break down large orders into smaller ones to avoid causing drastic price spikes. |
| Identification | Look for engulfing patterns and observe price behavior around those zones. |
| Features | Profitable order blocks usually suggest a trend reversal and form near support or resistance levels. |
| Formation Reason | They allow large trades to be executed smoothly without shaking up the market. |
| Strategy Example | Identify downtrends, spot bullish candles, and monitor price movements near the block. |
| Best Indicators | Support/resistance levels and engulfing candle patterns are key signals. |
| Pros & Cons | Order blocks reveal institutional activity but require practice to read correctly. |
What is an Order Block in Forex?
An order block is a price zone where major players place several buy or sell orders. To avoid moving the market too quickly, they divide these large orders into smaller chunks.
These smaller trades are then placed one by one, allowing prices to shift gradually. These blocks form strong support or resistance levels and often lead to a price reversal or continuation of a trend.
On a chart, you’ll typically see price slow down or reverse at these zones. Later, the price might return to the same area—testing the zone again before making a stronger move.
Types of Order Blocks
1. Bullish Order Blocks
These appear during a downtrend. Large traders see the asset as undervalued and begin buying it. The price starts to rise, comes back to the same zone, and continues upwards. This creates a support level.
A bullish order block is confirmed when a bullish candlestick engulfs a prior bearish one—suggesting demand has overtaken supply.
2. Bearish Order Blocks
These show up in an uptrend. Institutional sellers begin selling an asset they consider overbought. This creates resistance.
A bearish candle with a large shadow might form, showing that buying pressure has failed to push higher.
Retail traders often don’t see the big sell orders and may continue buying, but prices reverse after hitting the bearish order block.
3. Breaker Block
A breaker block forms after the price breaks through a previous support or resistance zone filled with institutional orders.
Once the price breaks through, it often returns to retest this area before continuing in the breakout direction. This retest creates the breaker block—a useful point to enter a trade.
4. Rejection Block
This type forms in choppy markets with no clear trend. It usually shows a long candlestick shadow (like a Doji) rejecting higher or lower prices.
This zone later acts as a support or resistance. Once the price revisits this range and bounces off, it becomes a good place to trade.
5. Vacuum Block
A vacuum block occurs during sharp price movements—usually due to news or major events. Because prices move too fast, there’s no time for trades in that range, creating a gap.
Eventually, prices return to this zone to “fill” the gap. After filling, the price might rebound strongly, offering a solid trading opportunity.
How Does Order Block Trading Work?
1. Support and Resistance Zones
Order blocks act like walls of buy or sell orders. These create zones of support or resistance, where price often pauses or reverses.
2. Stop Loss Hunting
Since traders often place stop-loss orders near these zones, price movement into an order block can trigger those stops—causing sharp price changes or reversals.
In lower timeframes, order blocks appear as price consolidation. In higher timeframes, they may show up as single engulfing candlesticks.
How to Identify an Order Block in Forex Trading?
Step-by-Step Guide
- Look for an Engulfing Pattern – This is your first signal that large players might be involved.
- Draw a Rectangle – Place it over the candlestick before the engulfing candle to mark the order block zone.
- Watch for Price Re-Entry – When the price revisits this area and breaks out again, consider entering a trade in the breakout direction.
Note: The engulfing pattern may include one or two candles. Also, the price might not fully enter the zone but just touch it before bouncing back.
Features of Profitable Order Blocks
1. In Line with a Trend
Order blocks work best during clear long-term trends. For example, in a falling market, a bullish order block can signal that institutions are preparing to buy.
2. Liquidity and Volume
Order blocks need plenty of trading volume to work effectively. Institutions won’t place large orders unless they’re sure others are willing to trade against them.
3. Visible on Higher Timeframes
Order blocks are clearer on H1, H4, or daily charts, where many smaller trades are combined into one large candlestick.
Although order blocks look like supply/demand zones, their purpose is different—they represent real institutional trading activity.
Why Do Order Blocks Form?
Imagine an institution wants to buy 1,000 units of a currency pair. But there are only 200 available at the current price. Placing one large order would push the price up and make the remaining 800 units more expensive.
To avoid this, the institution splits its order:
- It buys 100 units at a time as liquidity allows.
- This slow accumulation avoids revealing its intent to the market.
These smaller orders form what we call an order block—a zone where price tends to pause or reverse due to this smart accumulation or distribution.
Order Blocks Trading Strategy Examples
Bullish Setup
- Wait for a downtrend and spot a bullish engulfing pattern.
- Mark the range before the engulfing candle as the order block zone.
- Watch for price to revisit this area and bounce off.
- Enter a long position after confirmation.
Bearish Setup
- Identify an uptrend and then a bearish engulfing candle.
- Highlight the block zone before the engulfing candle.
- When price revisits and drops from this zone, it may be time to short.
Best Order Blocks Indicators
There are no specific built-in indicators for order blocks, but traders can use:
- Engulfing candlestick patterns
- Support and resistance tools
- Volume indicators
- Supply and demand zone indicators
- Smart money concepts (SMC) indicators on TradingView or MT4/MT5
These tools help identify likely institutional activity on the chart.
Pros and Cons of Using Order Blocks in Forex Trading
Pros:
- Offers insight into institutional trading activity.
- Helps pinpoint key support/resistance zones.
- Can improve entry and exit points with high reward-to-risk ratios.
Cons:
- Requires chart reading skills and practice.
- Can be confusing without proper training.
- Not always accurate in low-volume or highly volatile markets.
Conclusion
Order blocks are powerful tools in Forex trading, helping traders spot where institutional players are active.
These zones act as strong support and resistance levels and often hint at upcoming trend reversals. While they take time to master, using order blocks with proper risk management can significantly improve your trading accuracy.
FAQs – Order Blocks in Forex
1. Are order blocks the same as support and resistance?
Not exactly. While they act similarly, order blocks represent areas where institutional orders are placed, while support/resistance is often based on historical price behavior.
2. What timeframe is best for identifying order blocks?
Higher timeframes like H1, H4, or daily charts give the clearest signals.
3. Do order blocks always work?
No. Like all trading tools, they can fail—especially in volatile or low-volume markets.
4. Can I use indicators with order blocks?
Yes. Combine order blocks with tools like moving averages, volume indicators, or RSI for better accuracy.
5. How can I practice identifying order blocks?
Use a demo account and backtest past market movements. Focus on spotting engulfing candles and checking how price reacts when revisiting those zones.
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