Market structure: structure breaks and order blocks
A structure break is price closing beyond its last significant high or low; an order block is the zone where the move that caused the break was born, and it can react when price returns.
Market structure means reading whether a trend is healthy from the sequence of lows and highs. In a rising structure price exceeds its last high; in a falling structure it breaks its last low. If one of these breaks comes ‘the other way’, that is, if the last significant low breaks in a rising structure, the structure is damaged.
If you see a horizontal line labelled ‘BROKEN’ in the chart above, that level is the last significant high or low that was crossed on a close: this is a structure break. Its colour tells the direction: green an upside break, red a downside break. You may also see coloured, semi-transparent boxes on the chart. These are order blocks: the zone of the last opposite candle where the sharp move that made the break started. Big buyers or sellers are thought to have accumulated their orders there; when price returns to that zone, a reaction is common.
If an order block is broken and price moves through to the other side, it turns into a ‘breaker block’: it now plays the reverse of its old role. The evidence card also writes the box's state: has it been tested, is price inside it now, has it broken.
These ideas are very similar to classic support and resistance; the difference is that they find the level by asking ‘where did the move start’ instead of ‘where did it turn’. The boxes are areas of attention, not certainties.
Reading market structure is an attempt to follow the footprints of big players. A sharp move is usually the work of large orders rather than one person, and those orders are usually placed in pieces, not all at once. When price returns to the zone where the move started, the remaining orders are expected to step in there again. That is why an order block can be thought of as ‘the place where the unfinished part of the move is waiting’.
How to read it
- Read the structure first: in which direction are the recent highs and lows being exceeded? The ‘BROKEN’ line shows which way the structure has turned.
- Make sure the break happened on a close: a level crossed only by a wick does not count as broken.
- Watch the order block as a return zone: after an upside break, if price comes back to the green box, it is a candidate zone for joining the trend.
- A close below the box shows the box did not work; put the stop on the far side of the box.
Trap
The most common mistake is treating every box as a certain turning point. Order blocks form in large numbers and many of them get no reaction at all when price returns. The second mistake is looking at a structure break on a small time frame and considering the big trend reversed: a break on the 15-minute chart may be an ordinary swing inside the structure of the daily chart.
Tip
When you tap an order block on the evidence card, the box's state is written, such as ‘tested’ or ‘price inside’. A box price is already inside is a fresh decision point: will a reaction come, or will the box break and turn into a breaker?
Glossary
- Structure break
- Price closing beyond its last significant high or low.
- Order block
- The zone of the last opposite candle where the sharp move that caused the break was born.
- Breaker block
- A former order block that was broken through and now plays the reverse role.
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Study structure breaks and order blocks in an analysis →For information only, not investment advice.