1.6.3.
2 – How to Identify Order Blocks
Introduction to Identifying Order Blocks
Identifying order blocks is a crucial skill that differentiates institutional traders from retail
participants. Unlike conventional support and resistance zones, order blocks represent areas of
unful lled institutional orders, making them powerful reference points for future price
movements.
This section will break down the step-by-step process of identifying order blocks on a price chart
and provide advanced techniques to validate their signi cance.
Step 1: Understanding the Core Characteristics of Order Blocks
Before marking order blocks on a chart, it is essential to understand what makes them different
from generic price levels. Here are the key attributes:
✅ Large Volume Participation: Institutions leave their footprints in order blocks, visible through
volume spikes and aggressive buying/selling in a short time frame.
✅ Price Rejection & Impulse Moves: A strong price rejection from a zone, followed by an
impulsive move, indicates an institutional order block.
✅ Break in Market Structure (BMS): If an order block forms and results in a structural break
(higher high or lower low), it increases its validity.
✅ Unmitigated vs. Mitigated Blocks: Some order blocks are "mitigated" when price revisits
them and absorbs liquidity. The strongest ones are "unmitigated"—they remain untouched and are
prime levels for future entries.
✅ Bullish vs. Bearish Order Blocks:
• Bullish Order Blocks – Last down candle before an impulsive rally.
• Bearish Order Blocks – Last up candle before an aggressive sell-off.
Step 2: Locating Order Blocks on a Chart
To correctly identify order blocks, follow this structured approach:
🔹 Identify a Strong Impulse Move – Look for a price movement that breaks a key level
(structure shift) with momentum. The candle(s) before this movement form the order block.
🔹 Mark the Base Candle – The actual order block is the last bearish (for bullish OBs) or last
bullish candle (for bearish OBs) before the impulse move. This is where smart money executed
large orders.
🔹 Validate with Volume & Market Context – The presence of high volume, liquidity zones,
and alignment with macro trends increases the likelihood of price reacting to the order block.
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🔹 Look for Imbalances (FVGs) Around the Order Block – Institutional orders often leave Fair
Value Gaps (FVGs) nearby, further con rming smart money activity.
Step 3: Re ning Order Blocks for Precision Entries
Once an order block is identi ed, precision matters for entries and exits.
🛠 Key Re nement Techniques: 1⃣ Use Lower Time Frames – Drop to a lower time frame
(e.g., 5M, 15M) to identify re ned entry zones inside the larger order block. 2⃣ Check for
Liquidity Pools – Ensure there is liquidity just above/below the order block to enhance con uence.
3⃣ Volume Con rmation – Order blocks with a strong volume spike provide better reliability. 4⃣
Combine with VWAP or Moving Averages – Institutional traders often use VWAP deviations or
50/200 EMA crossovers around order blocks. 5⃣ Look for Stop Hunts & Fake Moves – A
common manipulation tactic is price brie y breaking the order block to trap early traders before
reversing.
Step 4: Backtesting & Case Study Examples
📌 Example 1: Bullish Order Block in NIFTY 50
A strong impulsive rally breaks previous resistance after forming a last bearish candle. Upon a
retracement, price reacts perfectly at the order block before continuing upward.
📌 Example 2: Bearish Order Block in Bank NIFTY
A sharp sell-off is preceded by a single bullish candle, forming a bearish order block. When price
retraces to this level, it fails to break higher and resumes downward.
Conclusion: Mastering Order Block Identi cation
Understanding order blocks is a skill that requires practice, observation, and re nement. By
following this structured approach, traders can pinpoint institutional price levels with high
precision, ensuring that their trades align with the footprint of smart money.
Next, we will proceed to 1.6.3.3 – The Role of Liquidity in Order Block Trading, which will
focus on the interplay between liquidity zones and order blocks for enhanced trade execution.
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