Order blocks: how to find and grade them

An order block is the last opposite candle before a strong, impulsive move. For a bullish order block, it is the last down candle before price explodes up and breaks structure.

The theory: institutions built part of their position there, and when price returns, they defend it.

1. It caused a break of structureThe move away from the zone must break a meaningful swing. No BOS, no order block.
2. It left imbalanceA strong move usually leaves a fair value gap. Imbalance shows the move was aggressive, not random.
3. It sits in the right zoneBullish blocks are strongest in discount (below the 50% of the range); bearish blocks in premium.

On the 1-hour chart, gold falls for four candles, then one strong bullish candle engulfs the last two and breaks the previous swing high. The last bearish candle before that impulse is your bullish order block.

You mark its high and low. The impulse also left a fair value gap just above it, and the block sits below the 50% of the most recent range: discount. All three checks pass.

A few hours later, price returns. It trades into the block, a 5-minute candle shows stopping volume, and the 5-minute chart breaks a small high. Entry follows, stop below the block's low, target at the recent high.

• Calling every candle an order block. Without a break of structure, it is just a candle.
• Using blocks that were already mitigated. Once price has come back and broken through, the zone has done its job.
• Stops inside the block. Price often wicks through part of the zone before reacting.
• Ignoring the higher timeframe. A 5-minute block against a daily downtrend is a weak setup.

An order block is where the move started. A breaker is an order block that failed: price closed straight through it, trapping the traders who bought or sold there. When price returns, those traders exit at breakeven, and their orders push price away again in the new direction.

Do not blindly place a limit order on every block. Price should reach the zone, react, and ideally show lower timeframe structure shifting in your direction. The stop goes beyond the far side of the block, not in the middle of it.