The idea
Large buyers and sellers often build positions in a zone before price moves sharply away from it. Traders mark that zone using the last candle that moved the other way just before the sharp move. That candle's range is called an order block.
Bullish and bearish order blocks
- Bullish (demand) order block: the last down candle before a strong move up. Traders watch it as an area where buying appeared.
- Bearish (supply) order block: the last up candle before a strong move down. Traders watch it as an area where selling appeared.
Mitigated or not
When price comes back into the zone, the order block is said to be mitigated (tested). Many traders only watch zones that have not been tested yet, and treat a zone that price closes through as no longer valid.
How it relates to support and resistance
An order block is a specific way of drawing support (below the price) or resistance (above it). It is often read together with VWAP, the day's volume profile and market structure.
Limits
Different traders draw order blocks differently, and price often trades straight through them. A zone shows where something happened before, not what must happen next.