Order Blocks Refined: High-Probability OBs

This lesson teaches how to qualify Order Blocks to identify those with a higher probability of holding, a key skill in SMC trading.

Introduction: Not All Order Blocks Are Equal

An Order Block (OB) is typically defined as the last up-close candle before a down-move (bearish OB) or the last down-close candle before an up-move (bullish OB). While this basic definition is a starting point, experienced SMC traders know that not all OBs are created equal. Many will fail or be disrespected by price. The key is to learn how to identify high-probability Order Blocks that are more likely to be zones where Smart Money will defend their positions.

Characteristics of a High-Probability Order Block

1. Must Take Liquidity: A high-probability OB should take liquidity from a previous swing high or low before the impulsive move. This "stop hunt" or liquidity grab is a sign of institutional activity.

2. Must Create an Imbalance (FVG): The move away from the Order Block must be strong and impulsive, leaving behind a Fair Value Gap (FVG) or price imbalance. This shows that the move was aggressive and one-sided, a hallmark of Smart Money participation.

3. Must Lead to a Break of Structure (BOS): The impulsive move originating from the Order Block should be strong enough to cause a Break of Structure. This validates the OB as a strong point that has successfully shifted the market direction.

4. Unmitigated: A "fresh" or unmitigated Order Block is one that price has not yet returned to since its formation. These are considered higher probability because the institutional orders placed there are likely still open.

Low-Probability Order Blocks

Conversely, be wary of Order Blocks that:

• Do not take any prior liquidity.
• Have a weak, corrective move away from them with no imbalance.
• Fail to cause a Break of Structure.
• Have already been mitigated (re-tested) multiple times.

These are more likely to be weak zones that price will trade through.

How to Use This Knowledge

• Filtering Setups: Use these criteria to filter your Points of Interest (POIs). Focus only on marking out and waiting for price to return to high-probability OBs.
• Higher Confidence: When you identify an OB that meets all the criteria, you can have higher confidence in looking for an entry when price returns to that zone.
• Avoiding Traps: Recognizing low-probability OBs can help you avoid taking trades from weak zones that are likely to fail.

Conclusion

Qualifying your Order Blocks is a critical step in refining your SMC analysis. By ensuring an OB has taken liquidity, created an imbalance, and caused a break of structure, you significantly increase the probability that it is a valid institutional zone. This filtering process helps you focus on the highest quality setups and avoid common trading traps.

In the next lesson, we will revisit Fair Value Gaps in more detail.