Order blocks

The Order blocks indicator identifies and visualizes supply and demand zones based on institutional order flow patterns to help traders find high-probability reversal or continuation areas.

Usage

The Usage section explains how to interpret the identified zones and how the settings modify the detection logic. Traders can use these zones as potential entry or exit points, often looking for price to retrace into a zone before continuing in the original direction.

The indicator allows for multi-timeframe analysis, meaning you can display Weekly or Daily order blocks on lower timeframe charts. When a zone is "mitigated" (entered by price), it can be configured to remain visible or disappear, helping you distinguish between fresh and tested liquidity.

For improved accuracy, it is recommended to align these zones with the overall market trend. The script includes an optional market structure filter that only validates order blocks that align with the current swing trend (Bullish/Bearish).

Details

Order blocks are conceptualized as areas where large institutional players have placed significant orders, leaving behind a footprint in the form of specific candle patterns. This script identifies these areas by looking for a "base" candle followed by a strong impulsive move.

The construction of a valid block in this script relies on:

• Liquidity Sweeps: Checking if the base candle took out the previous candle's high or low.
• Momentum: Measuring the reaction of the following three candles relative to the Average True Range (ATR).
• Imbalance: Identifying "Fair Value Gaps" where the price move was so aggressive that it left a gap in the price action.

The tool also utilizes a labeling system to notify users of retests, breakouts, and false breakouts (liquidity grabs) at the zone boundaries.

Settings

General Settings

• Timeframe: Defines the timeframe used to calculate order blocks.
• Count: Determines the maximum number of active order blocks shown on the chart.
• Type: Filters for "Bullish", "Bearish", or "Both" types of zones.
• Keep history: When enabled, old zones are preserved on the chart rather than being replaced by new ones.
• Remove broken zones: Automatically removes a zone if price closes through it.

Requirements

• Reaction: A multiplier of the 14-period ATR. The impulsive move following the base candle must exceed this value to validate the zone.
• Take out: Requires the base candle to have swept the high/low of the previous candle.
• Consecutive rising/falling: Ensures the three reaction candles move strictly in one direction.
• Fair Value Gap: Requires an imbalance (gap) to be present within the impulsive move.

Market Structure

• Enable: Filters order blocks so they only appear when they align with the market trend.
• Pivot: Sets the lookback period for identifying market structure pivots.
• OB must break MS within: A requirement that the order block must lead to a Break of Structure (BOS) or Change of Character (CHoCH) within a specific number of bars.

FAQ

How do I use the Order blocks indicator?

The tool identifies institutional supply and demand zones. You can look for price to return to these colored boxes for potential long (bullish zone) or short (bearish zone) opportunities, preferably in alignment with the broader trend.

What does the "Reaction" setting do?

It filters out weak price movements. By increasing the Reaction factor, the indicator will only show zones followed by significant volatility, which often indicates stronger institutional participation.

How can I access this indicator?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.