Lecture 7: How To Mark Order Blocks Correctly – Best Practices, Confirmation Rules, And Examples

Introduction

Order blocks are one of the most critical concepts in Smart Money Concepts (SMC). They represent the price zones where institutions and large financial entities execute their trades, leaving behind footprints that retail traders can use to predict future price movements. However, simply marking random blocks on a chart without proper rules can lead to incorrect analysis and poor trading decisions.

In this lecture, you’ll learn how to identify valid order blocks, the best practices for marking them, and how to confirm their strength before entering a trade. We will also go through real examples to reinforce the concepts.

What is an Order Block?

An order block is a zone on the chart where large institutional orders have been placed, leading to a strong price movement in one direction. These blocks indicate areas of supply (selling pressure) or demand (buying pressure), which institutions use to accumulate or distribute positions.

In simple terms, an order block is a cluster of candlesticks where price consolidates before making a significant move. Smart Money traders look for these zones because they often act as support or resistance when price revisits them in the future.

Types of Order Blocks

• Bullish Order Block (Demand Zone):
  Found before a strong upward move. This is where institutions have accumulated buy orders before pushing the price higher.
• Bearish Order Block (Supply Zone):
  Found before a strong downward move. This is where institutions have placed sell orders before pushing the price lower.

How to Mark Order Blocks Correctly

Step 1: Identify a Strong Move from Consolidation

A valid order block forms before a significant price movement. Look for areas where price consolidates (moves sideways in a range) before making a sharp breakout in one direction. The larger the breakout, the stronger the order block.

Example:

• If the price moves sideways for several candles and then suddenly shoots up, the last bearish candle before the move is the bullish order block.
• If the price consolidates and then drops sharply, the last bullish candle before the move is the bearish order block.

Step 2: Find the Last Opposite Candle Before the Move

In an uptrend, the bullish order block is the last bearish candle before the price surge.
In a downtrend, the bearish order block is the last bullish candle before the price drops.

Why? Institutions often fill their orders in opposite candles before making a big move. This is where Smart Money accumulates or distributes their positions.

Step 3: Ensure the Move is Strong and One-Sided

• Not every small consolidation is an order block. To confirm its strength:
• The price must break a significant structure after the order block forms.
• The breakout should have strong momentum, meaning large candles with little to no retracement.
• The move should not be choppy or slow—it should be decisive.

Step 4: Use Higher Timeframe Confirmation

Order blocks found on higher timeframes (H4, Daily, Weekly) are more reliable than those on lower timeframes (M5, M15). The larger the timeframe, the stronger the institutional presence at that level.

For example:

• If you see a strong bullish order block on the 4-hour chart, switching to the 15-minute chart can help refine your entry.
• If the price returns to the order block with weak momentum, it signals a good entry point.

Step 5: Wait for a Retest and Confirmation

After marking an order block, don’t enter a trade immediately. Wait for a retest and confirmation before executing a trade.

How to Confirm a Valid Order Block Retest:

1. Rejection Wicks – If price taps into the order block and quickly reverses with a wick, it shows institutional interest.
2. Engulfing Candle Formation – A strong engulfing candle appearing at the order block signals a reversal.
3. Break of Structure (BOS) – If the price reacts to the order block and breaks a minor structure in the opposite direction, it confirms that Smart Money is active.

Best Practices for Marking Order Blocks

✔ Use Higher Timeframes for Stronger Blocks – The 4H, Daily, and Weekly charts show institutional movements more clearly than lower timeframes.
✔ Combine Order Blocks with Other SMC Tools – If an order block aligns with a supply/demand zone or a Fibonacci level, it becomes stronger.
✔ Wait for Confirmation – Never trade an order block blindly. Look for a reaction before entering.
✔ Use Multi-Timeframe Analysis – Mark the order block on a higher timeframe and refine your entry on a lower timeframe.

Examples of Order Blocks in Action

Example 1: Bullish Order Block (Buy Setup)

1. On the 4-hour chart, price consolidates before making a strong upward move.
2. The last bearish candle before the breakout is marked as a bullish order block. 
3. Price returns to this zone and forms a rejection wick. 
4. A bullish engulfing candle appears, confirming entry.

Example 2: Bearish Order Block (Sell Setup)

1️⃣ On the daily chart, the price moves sideways before a strong drop.
2️⃣ The last bullish candle before the drop is marked as a bearish order block.
3️⃣ Price returns to the zone but fails to break above.
4️⃣ A bearish engulfing candle confirms a strong rejection, signaling a sell entry.

Common Mistakes to Avoid

1. Marking Every Consolidation as an Order Block – Not all consolidations lead to strong moves. Look for clear breakouts.
2. Ignoring Confirmation – Entering without a retest increases the risk of being stopped out.
3. Using Small Timeframes Alone – Lower timeframes (M1, M5) create weak order blocks. Higher timeframes provide stronger signals.
4. Forgetting Market Structure – If an order block contradicts the overall trend, it is less likely to hold.

Final Thoughts

Marking order blocks correctly is essential for Smart Money trading. By following the best practices and confirmation rules, you can identify high-probability trading zones where institutions have placed their orders.

Key Takeaways:

• Order blocks are areas where institutions accumulate or distribute positions.
• The last opposite candle before a strong move is the valid order block.
• Strong moves must follow order blocks for them to be valid.
• Always wait for confirmation before entering trades.
• Use multi-timeframe analysis to refine your entries.

What’s Next?

In Lecture 8, we will cover Imbalance and Fair Value Gaps: What They Indicate, How to Use Them in SMC – a key concept to understand how institutions manipulate the market before moving the price in their intended direction.