Order blocks and the buy or sell zone

"Order block" is a popular term with many definitions, some of them vague. Live Flow uses one simple, mechanical rule, so you can check every zone it draws by looking at the chart yourself.

The idea

Before a strong move up, there is often a last down-candle: the final moment sellers had the upper hand before buyers took over decisively. Many traders watch that candle's range, on the theory that buyers may defend it if price comes back. That range is the order block. For a move down it is the mirror image: the last up-candle before sellers took over.

The theory says large orders sit there. Nobody can see that from candles, so treat it as a reference area worth watching, not as proof that anyone is waiting at that price.

Live Flow's rule, exactly

Working on today's 5-minute candles, from the most recent backwards:

For a stock on the bullish side, the order block is the most recent candle that:

1. closed lower than it opened (a down-candle),
2. has its high below the current price, and
3. was followed later by a candle that closed above its high.

For a stock on the bearish side, it is the most recent candle that closed higher than it opened, has its low above the current price, and was followed by a candle that closed below its low.

The block's low-to-high range becomes the Buy zone (bullish) or Sell zone (bearish) in the stock's chart (click its card to open it). The card itself draws a separate set: order blocks found on 1-minute candles (a close at least 1.5 x ATR(14) beyond the candle within 3 candles that also clears the prior 6 candles' high or low), labelled BULL OB / BEAR OB with their time and faded once broken.

When there is no order block

Early in the day, or in a stock that has only drifted, no candle may fit the rule yet. Then the card shows a narrow band at Support 1 instead: from Support 1 up a quarter of the stock's ATR for a bullish stock, or from Resistance 1 down a quarter ATR for a bearish one. ATR here is the average true range of the last 14 five-minute candles: a measure of how much the stock typically moves in five minutes.

The order block's two edges are also added to the list of candidate prices for Support 1 and Target 1 (lesson 9).

How traders use a zone

• Wait for price to come to the zone rather than buying far above it. Entering near the zone puts the stop (just below Support 1) close by, which improves reward-to-risk.
• If price never comes back, the trade was missed, not lost. Chasing a stock far above its zone usually means a wide stop or no sensible stop at all.
• A clean break through the zone against the trade (a bullish stock closing below it) means the buyers who stepped in last time did not show up. The idea behind the card is gone.
• Zones move. Each minute Live Flow re-runs the rule on the latest candles, so a newer order block replaces an older one as the day develops.