Why Support and Resistance Works
Order blocks in forex are areas on the price chart where institutional traders placed large orders — leaving a visible footprint that price returns to and respects repeatedly. Most traders are taught that support and resistance works because of "market memory" — traders remember where price bounced before and buy or sell at the same level again. This is partially true but misses the more important mechanism. The real reason key levels hold is that institutional traders entered large positions at those levels and still have those positions open. When price returns to their entry level, they add to their positions — creating buying or selling pressure that causes the level to hold. Support and resistance is not a psychological phenomenon. It is an order flow phenomenon. Order blocks are the visual representation of where those institutional positions were initiated.
What an Order Block Is
An order block is the last candle (or sequence of candles) moving in the opposite direction before a significant impulsive move. Bullish order block: the last bearish candle (red candle) before a strong bullish impulse move. This is where institutional buyers were accumulating long positions before the move. When price returns to this area, those institutions add to their longs — creating support. Bearish order block: the last bullish candle (green candle) before a strong bearish impulse move. Institutions were distributing (selling) from this area. When price returns, they add to their shorts — creating resistance. The impulse move that follows the order block tells you how significant the institutional activity was — the stronger and faster the move away, the more significant the order block.
How to Draw Order Blocks Correctly
The order block zone is defined by the high and low of the relevant candle. For a bullish order block: the zone runs from the low to the high of the last bearish candle before the bullish impulse. For a bearish order block: the zone runs from the low to the high of the last bullish candle before the bearish impulse. The entire zone is relevant — price does not need to reach a specific level within the zone. Any touch of the zone is a potential entry. Order blocks on higher timeframes (Daily, 4H) are more significant than those on lower timeframes (1H, 15M). A Daily order block that price returns to on the 4H chart is one of the highest-probability setups available.
When Order Blocks Stop Working
An order block is invalidated when price closes through it decisively. A wick through the zone is not invalidation — that is often a liquidity sweep before the order block holds. A full candle close through the zone means the institutional positions at that level have been cleared and the order block no longer acts as support or resistance. This is important: once an order block is invalidated, it often becomes the opposite — a former support order block that has been broken becomes a resistance area as trapped longs look to exit at break-even.