What is a cryptocurrency order block indicator? How to identify and trade order blocks

What does an order block mean? What are the order block indicators? Learn how to identify and trade order blocks in crypto markets with clear strategies. This guide covers long and short order blocks, entry methods, risk management, and how to apply these tips on crypto exchanges such as Gate.io. Below, the editor of Script Home will introduce the order block in detail to you!

Order blocks are specific areas on a price chart that are centrally executed by large buy or sell orders (usually from institutional traders or market makers). These regions represent important liquidity levels and may indicate key positions in future price changes. Traders regard order blocks as tools to predict the possible reversal or continuation of trends in the market.

The order block provides deeper insight than traditional support and resistance levels. The support and resistance zones are usually just generalized areas of price reactions, while the order block reveals precise areas affected by a large number of market behaviors. Therefore, they are more reliable when identifying in and outfield points. For example, if a long order block is formed, it usually means that the buyer is expected to take over, driving the price up. On the contrary, short order blocks mark a possible seller's chance of taking over the situation, causing prices to fall. These areas help traders predict possible price reaction positions based on previous actions by big investors.

Types of order blocks

Long order block

Long order blocks are areas on the price charts composed of large amounts of bulk buying transactions (usually institutional investors). It represents a strong buying area, essentially a high demand zone. This area usually exists as a support level—when the price then falls back to this area, it often stops falling and rebounds upward. Traders often view long order blocks as potential buying areas, as previous strong buying could push the market up again.

Long order blocks are usually formed at the end of a downward trend, or after a bullish breakout (i.e., the trend turns upward). They are usually marked by a noticeable last bearish (down/red) candle, followed by a strong upward trend. In many cases, the subsequent upward push will even break through previous band highs, confirming that the trend may be reversing upward. This model implies that big buyers have entered the area, absorbing the final selling pressure and pushing the price up.

Short order block

The opposite is true for short order blocks - they are traces left by large-scale exchanges that have experienced large-scale selling behaviors in the price area. It represents a strong selling pressure area (supply zone) that may inhibit further price uptrend. This area usually acts as a resistance level—when prices rebound to this area, the rise often stagnates or falls. In other words, short order blocks mark potential selling areas, as previous intensive selling may once again push the market down when backtested.

Short order blocks are often formed at the end of the upward trend, or after a short breakout (the trend turns to a downward trend). On the chart, they appear as a sharp drop that follows the last long (up/green) candle. The subsequent downward trend usually breaks through previous band lows, indicating that the trend may have reversed downward. This pattern shows that big sellers have shipped in the area, overwhelming buyer power and causing prices to fall.

How to identify order blocks

The key to identifying an order block is to find out where the price has a strong reversal due to large buy or sell orders. Order blocks (whether long or short) may appear on any time cycle chart (ranging from 5 minutes to weekly), but high time cycles like 4-hour or daily charts tend to mark more important areas. Traders usually use multi-time period analysis - for example, first mark an order block area on the 4-hour chart, and then use the 1-hour chart to grasp the timing of entry. Below we will explain step by step how to identify long and short order blocks.

How to identify long order blocks

To identify a long order block, follow these steps:

1. Determine the market background: determine whether the price is currently in a downward trend or consolidation stage. Long order blocks usually occur after a price drop or during a pullback—essentially the stage when the buyer is ready to enter at the end of a short move. For example, in a downtrend market, you should pay attention to whether long order blocks are formed when the trend is ready to reverse.

2. Identify the breakthrough after consolidation: Find the area where the price fluctuates sideways (i.e. consolidation or bottoming out), followed by a sudden, strong bull rise. This sharp pullback means the buyer has overwhelmed the seller. Ideally, this strong rise should break through the previous high point, resulting in an upward breakthrough in the market structure (price forming a higher high point). The structural breakthrough confirmed that this was not just a small rebound, but an important bullish turn.

3. Mark the last bearish candle: When you observe a bull breakout, find the last bearish (red) candle before the price rises sharply. This candle is the starting point for the order block. Mark the interval (from lowest to highest) of the candle as a long order block area. Essentially, this downward candle represents the seller's final push, and then the buyer begins to take control of the situation.

4. Draw and extend the area: Extend the above marked area to the right on the chart. This area is now a potential demand zone (support). In the future, when prices are backtested by this long order block area, it often rises because institutional payouts are usually left here.

5. Wait for backtesting: Then wait for the price to fall back to the long order block and rise again. If a strong bullish reaction occurs in the area (such as a long candle pattern or a rapid rebound), it means that the order block plays a supporting role as expected, showing strong buying interest.

How to identify short order blocks

To identify short order blocks, the opposite steps can be taken:

1. Clarify the market background: observe whether the market is in an upward trend or in an upward trend. Short order blocks are usually formed at the end of the uptrend or after a strong pull-up, when the seller may suppress the market. In an upward market, it should be predicted that when buying momentum is exhausted and the reversal is approaching, short order blocks may begin to appear.

2. Find the decline after consolidation: locate the area where the price fluctuates sideways or stagnates (a small area or distribution area), and then the price will experience a rapid and strong short decline. This sharp decline indicates that the seller has control. A decline should break through the previous low or support level - that is, the market structure breaks downward and the price forms a lower low. This breakthrough confirms a significant short-selling shift in the market structure (buyers fail to hold on to support).

3. Mark the last bullish candle: Identify the last bullish (green) candle before the price drops sharply. Mark the range (from highest to lowest) of this candle as the short order block area. This upward candle is essentially the buyer's last try, and the seller then takes over the market. Marking the candle range can clarify the starting point of the agency's selling order.

4. Draw and extend the area: Extend the area of ​​the above mark to the right. This area now becomes a potential supply zone (resistance). When the price rebounds again to this short order block, it tends to stagnate or reverse the decline, as expected, as a result of a large amount of selling pressure concentrated in the region.

5. Wait for backtesting (optional): Wait for the price to backtest the short order block area from the lower direction. A common result is that a short signal appears after the price hits the area (such as upper shadow rejection, strong short candle pattern) and then falls again. This reaction verifies the role of the order block as a resistance zone, indicating that the seller is defending this price range.

How to trade order blocks

The key to trading order blocks is to "trade with the trend" rather than "trading against the trend" - that is, go long at long order blocks and short at short order blocks. Below we will explain how to formulate entry plans, stop loss settings and profit targets based on order blocks (whether it is the demand area or the supply area). These principles apply to spot trading and contract trading (you can go long or short depending on the situation), but be sure to manage risks with caution due to the use of leverage.

How to trade long order blocks

• Identify long order blocks: start marking the area from the last down candle before a sharp rise (usually before the oscillation zone enters the main upward wave). This is your long order block (demand area).
• Wait for the price to fall: Let the price run up first (to confirm the importance of the area), and then fall back to the order block area. Patience is key – you need to wait for the price to retest the area.
• Confirmation and entry: During the backtest, observe whether there is a confirmation signal of the buyer actively entering the market. For example, if a bull reversal pattern appears (such as a swallowing pattern or a hammer line), or the price slightly breaks the structure from this area. Once confirmed, you can enter the market and go long (buy in spot, or go long in contract), with the goal being to take advantage of the trend and rise.
• Stop Loss Settings: Set the stop loss below the lowest point of the order block (below the lowest price in this area). This can stop the loss in time when the order block fails and the price continues to fall, minimizing losses. The stop loss is set below the area and can automatically exit the trading when the support fails.
• Profit goal: Plan the take-profit position in advance. The common approach is to target at least the previous high (highs formed after the initial rise) because that is usually a logical resistance level. You can also target a significant supply zone (the short order block above) or use technical tools such as Fibonacci extension to predict further target positions. Ensure that potential returns outweigh the risk – Many traders pursue a risk-reward ratio of at least 1:3 or 1:4 in such trading. As the price reaches its phased target, you can partially take profit and move the stop loss up to lock in profits.
• Continuous monitoring and management: During the transaction, pay close attention to the performance of prices approaching the target or weak upward trend. If the order flow changes or strong resistance suppresses the price, consider putting the bag in advance. In contract trading, since leverage will amplify fluctuations, be sure to actively manage positions: when the price is running in a favorable direction, you can consider moving the stop loss up to the guaranteed position and pay attention to the capital rate or forced leveling risks.

How to trade short order blocks

• Identify short order blocks: mark the area where the last upward candle is located before a sharp decline. This "consolidation before the decline" is your short order block (supply zone).
• Wait for the price to rebound: Let the price fall a little further from the area and then rebound back to the order block area. You want the market to return to this price range, creating a potential selling opportunity.
• Confirmation and entry: When the price returns to the short order block, observe whether there is a weak or reversal signal. For example, if a short reversal candle pattern appears in the area (such as a meteor line or engulf pattern), or if the price breaks below the secondary support level after touching the area. You can also use indicators to assist confirmation - for example, in some strategies, when the price touches the order block, a dead cross on the moving average (such as the 9/21 EMA dead cross) appears, which means that the trend may decline. Once the area is confirmed to be effective as resistance, you can enter the market to short (open short in the contract, or use leverage to short in spot) to gain a decline profit.
• Stop loss settings: Set the stop loss above the high point of the order block. This upper limit can control risks and prevent order blocks from failing and prices continue to rise. The stop loss is slightly above the resistance zone, which helps to quickly stop loss exit when the buyer's strength breaks through the order block.
• Profit target: Set a reasonable downward target. Usually traders use the previous low formed after the initial decline as the take-profit point (because that may be a demand zone). Another goal could be the next demand zone below (the recent long order block). Support or Fibonacci extension tools can also be used to assist in setting goals. As always, ensure a good risk-reward ratio—for example, the short order target is 1.5 times or more of the risk.
• Continuous monitoring and management: Observe performance during price decline. If the price is close to strong support or your take-profit goal, be sure to be ready to lock in profits in time. In contract trading, short short order blocks can make profits from declines, but leverage risks need to be controlled - pay attention to your margin level. If the market is obviously moving in your favor, you can consider moving the stop loss down to protect the existing profits.

Trading strategies using order blocks

Traders will adopt different entry strategies based on their own risk tolerance and market conditions. The two most common methods are Aggressive Mode and Conservative Mode.

Radical Mode

In aggressive mode, traders will enter immediately when the price returns to the order block area. No additional confirmation signals are waiting. This approach is faster and usually gets better entry prices, but also has higher risks, as prices may continue to break through without respecting the area.

Applicable circumstances:

• When you trust the strength of the order block very much (for example, the block comes from a high time period, or is followed by a strong shock market).
• When the price range has not been touched (fresh order blocks usually respond more strongly).
• In a trend market, the pullback is usually shallow and fast, which is more suitable for entering the market.

Conservative mode

In a conservative model, traders will wait for the price action to be confirmed before entering the market. Common confirmation methods include:

• Candlesticks with rejection forms (such as Pin Bar, hammer line or engulf form)
• Structural breakthroughs occur near order blocks (e.g., higher highs are created when backtesting long order blocks)
• A clear price response signal (price gets support or resistance in this area, not direct penetration)

This approach helps reduce false signal entry, but usually results in slightly lower entry prices. Suitable for traders who value security more.

Applicable circumstances:

• In a volatile or consolidation market
• When the order block is weak or has been tested
• When trading with leverage or larger positions

in conclusion

Order blocks are an important tool to identify key price areas, which are often where large funds enter. By learning how to identify, confirm and trade these areas, combined with clear entry rules and risk management, traders can improve entry and exit timing and decision-making quality in spot and contract markets. Whether you prefer to enter the field with a conservative or conservative approach, adhering to a consistent strategy and protecting the principal is always the core principle.

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