Order block
An order block is a price zone formed by the last opposite candle before a strong move that breaks a swing level. For a bullish order block, it is the last down candle before a sharp rise that breaks above a swing high; for a bearish one, the last up candle before a sharp fall that breaks below a swing low. The idea, from smart money concepts, is that large orders were placed there and that price may react when it returns to the zone.
How traders use it
- Entries on a retest: wait for price to come back into the zone and show a reaction.
- Stop placement: put the stop loss just beyond the far edge of the zone, where the idea is clearly wrong.
- Confluence: combine the zone with a break of market structure, a fair value gap or a liquidity sweep.
An order block is a reading of the chart, not a guarantee. Many zones are broken without any reaction, which is why rules built on them should be backtested.
On Algonney
The order block detector finds these zones automatically from confirmed swing levels and keeps each one with its high and low. A strategy can check whether price is inside a zone, react to its first touch and place its stop loss at the zone's edge. Because swing levels are confirmed only after price has turned away from them, a backtest sees each zone only from the candle where it was known.
Related: fair value gap, market structure and Technical analysis.