An order block is the last opposite-coloured candle before a strong move that breaks structure. SMC traders read it as the area where large orders were filled before the move, and they watch for a reaction the first time price comes back to it. You mark one from a single candle, test it against four filters and plan a trade for its first return.
What you will learn
- How to mark a bullish or bearish order block, and its midpoint
- Four filters that separate a usable block from any candle before a rally
- What mitigation means, and when a block has failed
- How to plan the entry, stop and size for a retest on a $25K Direct account
Mark the block
A bullish order block is the last down candle (one that closes below its open) before an up move that breaks a swing high. A bearish order block is the last up candle before a down move that breaks a swing low. If several down candles come in a row before the move, some traders mark the whole group. The examples here use the last candle only.
On a one-hour EUR/USD chart, the last down candle opens at 1.0874, reaches a high of 1.0878, dips to a low of 1.0861 and closes at 1.0865. The next three candles rally to 1.0920 and close above the swing high at 1.0905, which is a break of structure.
The block runs from the candle's low to its high, 1.0861 to 1.0878, which is 17 pips. Some traders use only the body, here 1.0865 to 1.0874. That is tighter, but price can turn from the wick area without ever reaching the body.
ICT traders also mark the midpoint, which they call the mean threshold: (1.0861 + 1.0878) ÷ 2 = 1.08695, about 1.0870. In ICT teaching, a block that holds above its midpoint on the return is reacting as it should, and a close below the midpoint is a warning.
Order blocks are close relatives of the zones in Mark supply, demand and imbalance zones before price returns. The difference is that an order block is one candle, tied to a break of structure.
Four filters
Down candles before rallies are everywhere. Keep a block only if it passes all four of these filters.
- It caused a break of structure. The move away has to close beyond a swing, as in lesson 2. Here the rally closed above 1.0905.
- The move away was strong. Look for large candle bodies, ideally leaving a fair value gap, where the first candle's high and the third candle's low do not overlap. Set a measure and use it every time, such as a move of at least three times the block's height. The rally from 1.0861 to 1.0920 covered 59 pips, about 3.5 times the 17-pip block.
- It took liquidity first. The block's low of 1.0861 went 3 pips below an earlier one-hour low at 1.0864, so it swept the sell stops there before the rally (lesson 3).
- It agrees with the higher timeframe. A bullish block counts for more when the four-hour structure is bullish, and a bearish block when it is bearish. A bullish block in a bearish four-hour trend is a counter-trend trade and needs a reason of its own.
A candle that fails the first filter is not an order block at all. One that passes all four can still fail, so it gets the same stop and size rules as any other trade.
Mitigation and failure
Mitigation means price returning to the block. The SMC reading is that orders left unfilled in the zone get filled on the return, which is why the block is then called mitigated. The first return is the one traders plan for. Later returns tend to bring weaker reactions, for the same reason a support level weakens with each test (Mark support and resistance zones).
Continue the example. Price rises to 1.0935, then falls back over the next session. It trades down to 1.0876, two pips inside the block, and turns up. The block is now mitigated. If price comes back to 1.0870 a day later, that is a second test, and you would expect less from it.
A block has failed when a candle body closes beyond its far side, here a one-hour close below 1.0861. Some SMC traders then flip the zone: a failed bullish block may act as resistance when price rallies back into it, and they call it a breaker block.
Plan the retest on a $25K Direct account
A $25,000 Direct account has a daily loss limit of $1,000 and a floor of $23,500, which leaves $1,500 of room above the maximum loss. At 0.5% risk, each trade risks $125. EUR/USD is worth about $10 a pip for one lot.
- Place a buy limit order at the top of the block, 1.0878.
- Put the stop 4 pips below the block's low, at 1.0857. That is 21 pips of risk.
- Set the target just below the 1.0935 high, at 1.0932, because buy-side liquidity sits above that high. The target is 54 pips away, about 2.6 times the risk.
- Size = 125 ÷ (21 × 10) = 0.595 lots, rounded down to 0.59. The actual risk is 0.59 × $10 × 21 = $123.90, and a filled target would add 0.59 × $10 × 54 = $318.60.
Entering at the midpoint, 1.0870, shortens the stop to 13 pips. The size rises to 0.96 lots for $124.80 of risk, and the 62 pips to the target are more than four times that stop. In this example, though, price turned at 1.0876 and never reached 1.0870, so the midpoint order would not have filled. The top of the block fills whenever the midpoint does and on many returns when it does not, while the midpoint pays more when it fills. Choose one, and use your trading journal to record how each works for you.
Before trading costs, the $1,500 above the floor covers twelve full losses of $123.90, which come to $1,486.80. Set your own daily stop well inside the $1,000 daily limit: three losses in a day come to $371.70.
Check your understanding
The last up candle before a sharp drop opens at 1.2610, reaches 1.2624, dips to 1.2605 and closes at 1.2619. The drop closes below a swing low. Where is the bearish block?
From 1.2605 to 1.2624, which is 19 pips, with a midpoint of 1.26145, about 1.2615. You would look to sell on the first return into that zone.
Your bullish block runs from 1.0861 to 1.0878. A one-hour candle closes at 1.0855. What now?
The block has failed, because a body closed below its far side. Cancel any buy orders there. If price rallies back into the zone, some traders watch it as resistance, a breaker block.
On a $25K Direct account you risk 0.5% with an 18-pip stop on EUR/USD. What size do you open?
$125 ÷ (18 × $10) = 0.694, rounded down to 0.69 lots, which risks $124.20.
Key points
- An order block is the last opposite candle before a move that breaks structure: the last down candle for a bullish block, the last up candle for a bearish one.
- Keep only blocks that broke structure, moved away strongly, took liquidity first and agree with the higher timeframe.
- Plan for the first return. A body close beyond the far side means the block has failed.
- Put the stop beyond the block, size from that distance, and pick either the top of the block or its midpoint as your entry rule.
Next lesson: Spot displacement and plan entries from the imbalance it leaves
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