This article is only a personal trading study note and does not constitute investment advice. Trading involves risk. Make independent judgments and take responsibility for your own decisions.

ICT on Order Block: how to draw and apply Order Block - SMC

When learning SMC, Smart Money Concepts, Order Block is a very important concept. It helps traders observe the entry and exit of institutional capital and capture trading opportunities inside price movement more accurately. Next, Penchan will walk through Order Block in detail.

Black-background candlestick chart uses red and green bars to show price leaving and then retesting a yellow block, explaining Order Block as potential support/resistance

Figure 1. Order Block concept chart

An Order Block is formed by a specific candle. It can mark where Smart Money buys and sells. Compared with common supply and demand zones, Order Block provides clearer price information. Traders can even combine it with familiar technical-analysis techniques on lower timeframes to refine the Order Block.

ETH trend stabilizes and consolidates inside a yellow Order Block after a decline, then retests the area and moves higher, showing an Order Block within a trend

Figure 2. Order Block inside a trend

Bullish Order Block

By definition, the following conditions form a Bullish Order Block. The drawing range is from open to close, Open - Close.

Lowest candle

Bearish candle

Widest open-to-close body

Near a key support level [1]

White swing line drops into a yellow support zone and rebounds; green circle marks the valid breakout and yellow circle marks the retest entry for a Bullish Order Block

Figure 3. Bullish Order Block

After finding an Order Block, you need to wait for the highest price of that Order Block to be broken by a later candle before confirming its validity. Refer to Figure 2. After price leaves the high of the Order Block, a pullback into it can be treated as a potential entry-observation area.

Bearish Order Block

By definition, the following conditions form a Bearish Order Block. The drawing range is from open to close, Open - Close.

Highest candle

Bullish candle

Widest open-to-close body

Near a key resistance level [1]

White swing line pushes into a yellow resistance zone and turns down; green circle marks the valid breakdown and yellow circle marks the retest entry for a Bearish Order Block

Figure 4. Bearish Order Block

After finding an Order Block, you need to wait for the lowest price of that Order Block to be broken by a later candle before confirming its validity. After price leaves the low of the Order Block, a pullback into it can be treated as a potential entry-observation area.

Simplified Order Block

A Bullish Order Block can be found as the final bearish candle before a move breaks a swing high. This is also the common way people search from MSB, Market Structure Break. You can also refer to reference [2] at the end. A Bearish Order Block can be found as the final bullish candle before a move breaks a swing low.

The simplified Order Block can also use the entire candle, meaning the full range from high to low.

White swing drops into a yellow zone, breaks upward and marks MSB, then retests the block and continues higher, showing the simplified Bullish Order Block method

Figure 5. Simplified Order Block diagram

Candles complete MSB in a low yellow block and then rise strongly, showing a simplified Bullish Order Block marked with the full candle

Figure 6. Simplified Order Block

Application and Trading Strategy

After understanding the definition, let’s look at how to choose and apply Order Block. First, remember that Order Block has clear definitions, but in practice people use it differently according to personal habits. Do not follow the rulebook blindly.

First, when we are considering opening a position, several price levels can be used as references. Using Bullish Order Block as the example, pay special attention to three key levels: the high of the Order Block, the candle open [3], and the midpoint of the Order Block. All three can be ideal Order Block entry levels. Traders can also use lower-timeframe refinement if needed.

Candles pull back into a yellow Order Block with the upper edge and midpoint overlaid, showing the high, open, and midpoint as three bullish entry references

Figure 7. Reference entry levels

However, a trade is not only about entry timing. More importantly, we need to manage trading risk properly. For stop loss, traders can consider using the low of the Order Block as a relatively safe stop level. Also, once price leaves a Bullish Order Block, the lower half of the entire Order Block, the 50% area, can also be treated as a suitable stop-loss area.

Order Block is split into an upper green half and lower brown half, with a red line at the bottom marking the low stop level and explaining risk control around the 50% area

Figure 8. Reference stop-loss levels

For take profit, traders can try to find previous highs, meaning Liquidity Pools, and use them as take-profit targets. Other technical-analysis methods can also be paired for exits.

Price attacks upward from a yellow Order Block, with a horizontal line at the upper right marking the previous-high Liquidity Pool as a take-profit target

Figure 9. Reference take-profit level

Also, when price touches an Order Block, we need to watch how it changes at all times. Traders can mark the previous Order Block because sometimes when the current Order Block is broken, the previous Order Block may become a potential reversal point.

Ideally, when price enters an Order Block, it should not exceed the midpoint. In some cases, price may slightly exceed the midpoint, and that is still acceptable. But when price clearly retraces beyond 50% of the Order Block, we can consider this Order Block invalid and shift our focus to the previous Order Block or other price action.

Price pulls back into the Order Block and only touches the upper half without losing the 50% divider, showing that slightly passing the midpoint can be acceptable but losing the half-zone invalidates it

Figure 10. Splitting the Order Block by 50%

The examples above use Bullish Order Block. For Bearish Order Block, just reverse the logic. For simple graphics on Order Block, you can also visit reference [2] and find Penchan’s post.

Summary

Order Block is a key tool for traders reading institutional order flow. In general, institutions operate on higher timeframes such as monthly, weekly, and daily charts. They often prefer to use Order Block for positioning and trading. Although individual traders have limited capital, by understanding SMC and choosing and applying Order Block concepts accurately, everyone can more effectively follow large capital and improve the opportunity for profit.

Reference [1]: For how to find key levels, see “ICT on Support and Resistance: Natural Support and Resistance Across Multiple Timeframes” https://da.studio/archives/13108 .

Reference [2]: For the simplified Order Block method, see Penchan’s post “WHAT IS Order Block” https://www.instagram.com/p/ChHv1hNhcHq/ .

Reference [3]: In ICT’s definition, an Order Block is drawn from open to close. In the simplified version, however, the full candle range from high to low can be used. This method is also widely used, so it creates different Order Block highs and candle-open levels.

FAQ

Q: What is an Order Block?

An Order Block is a footprint left on the chart when large institutions enter or exit positions. It often appears as the final counter-trend candle before a trend reversal and may become future support or resistance.

Q: How is an Order Block different from a supply/demand zone?

The ideas are similar, but Order Block focuses more on interpreting institutional behavior, while supply/demand zones are closer to a general technical-analysis view. Order Block drawing is usually more precise and uses a specific candle as the reference.

Q: How can you validate whether an Order Block is effective?

Observe how price reacts when it returns to the Order Block area. If there is a clear bounce or rejection, and volume also confirms it, the Order Block is more likely to be effective.