Order Blocks Explained — How Smart Money Uses Them in Futures
Order blocks are one of the most important concepts in ICT and Smart Money trading. They represent areas where institutional traders placed large orders, creating zones of interest that price tends to return to. Understanding how to identify and trade order blocks is a cornerstone of the ICT methodology.
What is an Order Block?
An order block is the last bullish or bearish candle before a significant move in the opposite direction. The idea is that institutional traders placed large orders in this candle and price will eventually return to that zone to fill remaining orders. The order block represents an area of institutional interest.
Bullish Order Block
The last bearish candle before a strong bullish move. When price returns to this zone from above, it often finds support and continues higher. The body of the candle is the primary zone, with particular attention to the 50% level.
Bearish Order Block
The last bullish candle before a strong bearish move. When price returns to this zone from below, it often finds resistance and continues lower.
How to Identify Valid Order Blocks
Not every candle before a move is a valid order block. Look for these characteristics:
- Preceded by a displacement move — the move away from the OB must be strong and impulsive
- Creates a Fair Value Gap — the displacement often leaves a FVG that confirms institutional activity
- Aligns with higher timeframe structure — a bullish OB on a 5-minute chart is stronger when the 4-hour is also bullish
- Has not been violated — once price closes through an order block, it is no longer valid
Breaker Blocks
A breaker block is an order block that has been violated — price has traded back through it and closed beyond it. When this happens, the original bullish order block flips into a bearish breaker block, and vice versa. Breaker blocks act as opposing reference levels and are powerful entry zones when retested.
Order Blocks and Prop Firm Trading
Order blocks are particularly useful for prop traders because they provide well-defined entry and stop placement. A stop placed just beyond an order block is logical — if price closes through the OB, the thesis is invalidated. This gives you tight stops and favorable R:R ratios which are essential when managing a trailing drawdown.