Lesson 5 of 7 · 9 min
Order blocks: what the term means and what it does not
Mark order blocks and fair value gaps with a fixed rule, see how often price comes back to them, and separate what the chart shows from claims about banks.
By the end you'll be able to
- Mark an order block with a rule, as the last opposite-colour candle before the move that broke structure
- Mark a fair value gap and see whether price later trades back into it
- Explain what these labels cannot tell you, and why they must be tested before you use them
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A chart on social media shows a shaded box labelled “institutional order block” and an arrow bouncing off it. Nobody outside the institution can check whose orders were there. What you can check is a candle, and what price did when it came back.
The candle before the break
Illustrative EUR/USD H1, the chart from the structure lessons: the break, the order block and the gap.
An order block (OB) in this course is the last candle of the opposite colour before the move that broke structure. For a bearish break, the last green candle before the drop; for a bullish break, the last red candle before the rally. The zone is that candle’s full range, high to low. When price later returns to it, SMC traders say the block is being “mitigated”.
Other teachers use the body only, require the block to have swept liquidity first, or require a gap after it. Each choice gives different boxes. Pick one and write it down.
A fair value gap (FVG), also called an imbalance, is a three-candle pattern where the first and third candles do not overlap. In a fall, the first candle’s low is above the third candle’s high. Price moved through that area in one direction only. SMC teaching often expects price to come back into gaps; on the chart below all three gaps are revisited within a few candles, which is common for small gaps and says little about what happens after.
What the labels cannot tell you
An order block is a supply or demand zone defined by a different rule. Both describe where price left fast. Neither shows who traded. Spot forex has no central exchange and no public order book, so a retail chart shows your broker’s prices and nothing about which banks bought or sold. Claims that a box marks “institutional orders” cannot be checked from the chart.
There is a second problem: hindsight. Every break of structure produces an order block, so a chart is full of them. The ones that held are memorable and get posted; the ones price ran straight through are quietly deleted.
Try it
Order blocks (green for bullish, red for bearish) and fair value gaps (grey, drawn until price first trades back in). Change the rules and count the boxes.
The bullish block at candle 10 was revisited on candle 19, and candle 20 closed below it; switch to 1 candle each side and a fourth block appears, from the same prices.
Quick check
Quick check
Question 1 of 4
Under this course's rule, what is the order block for a bullish break of structure?
Question 2 of 4
Candle A's high is 1.0830 and candle C's low is 1.0840, with candle B rising between them. What is there?
Question 3 of 4
What can an order block on your chart tell you about bank orders?
Question 4 of 4
Bearish OB 1.0842–1.0866, stop 1.0871, target 1.0810. You enter at 1.0854. What is the reward-to-risk?
Go deeper: Price Action Trading: Reading the Market Without Indicators · Support and Resistance in Forex: Find and Trade Key Levels · Lesson: Testing a strategy