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Order block vs fair value gap, and when a block becomes a breaker

An order block is the last opposite candle before the fast move that broke structure, and a fair value gap is the three-candle gap the same move leaves between the wicks. When the move starts right after the block, the first gap usually sits directly beside it, above a bullish block and below a bearish one. A breaker block is an order block that price closed through and accepted beyond, which then acts from the other side.

By Finora Team ·

On this page (6 sections)

On AVAX’s 4h chart, one down candle and the fast move after it left two zones side by side: an order block from 32.10 to 32.55 and a fair value gap from 32.55 to 32.95. Which one the trade is built on decides whether an ordinary pullback into the block stops it out. All prices here are invented.

What each zone is

An order block (OB) is the last opposite candle before a displacement (a fast run of large-bodied candles) that broke structure: the last down candle before a bullish break, the last up candle before a bearish one. We mark it wick to wick; some traders use only the body.

A fair value gap (FVG) is the three-candle gap the displacement leaves: on a bullish move, from the first candle’s high to the third candle’s low, where those wicks don’t overlap (more in the fair value gap guide).

A breaker block is an order block that price closed through and accepted beyond, so the same band works from the other side: a broken bullish block as resistance, a broken bearish one as support.

“Broke structure” means a break of structure (BOS), a candle close beyond the last confirmed swing in the trend’s direction. We call a swing confirmed once five candles have printed on each side of it.

How they sit on one move

When candle 3’s low stays above the block candle’s high, the block is also candle 1 of the gap, so with wick-to-wick marking the two zones share an edge. On a bullish move that gap sits just above the block, so a pullback reaches the gap first.

Each zone fails on a candle close beyond its far edge (the bottom of a bullish zone, the top of a bearish one), on the timeframe it was marked on. Price can close below a bullish gap and still hold the block, but a block that fails means the gap failed too. Often the block’s candle printed the swing low the leg started from. While that low is still the last confirmed swing low, a close below it is also a change of character (CHoCH), which flips the trend on that timeframe. In that case we put a long’s entry at the top of the block and its invalidation on a close below the block’s low.

Which one to trade from: a 4h example

AVAX on the 4h is in an uptrend. The last confirmed swing high was 33.20, and the pullback from it bottomed at 32.10, a higher low. Three candles follow:

  • Candle 1 opens at 32.45, tops at 32.55, prints the 32.10 low and closes at 32.20. It is the last down candle before the move, so the block runs from 32.10 to 32.55.
  • Candle 2 opens at 32.20 and closes at 33.50, above 33.20: a bullish BOS.
  • Candle 3 has a low of 32.95, so the gap runs from 32.55 to 32.95.

Price climbs to a 34.60 high, confirmed by five 4h candles under it, with no swing low confirming on the way. So 32.10 is the last confirmed swing low, and the 4h trend stays up until a close below it.

THE 4H BLOCK AND GAP IN THE EXAMPLEold high34.60 hightargetgaporder blockentryinvalidationstop123
  1. Candle 1, the order block: 32.10 to 32.55
  2. Candle 2: closes at 33.50, above the 33.20 high
  3. Candle 3: its 32.95 low is the gap’s top
Invented prices, roughly to scale.

Recent 4h wicks ran 0.10 to 0.15 past their levels, so the stop goes 0.20 past the line. The plan:

  • Entry: a limit at 32.55, the top of the block and the bottom of the gap.
  • Invalidation: a 4h close below 32.10.
  • Stop: 31.90. The 0.65 from entry is 1R.
  • Target: 34.50, a little before the short sellers’ buy stops above the 34.60 high, which price often runs toward: 1.95 away, 3.0R.
  • Size: about 293 AVAX for a loss of 200 USDT at the stop, fees included.

The trade exits on the invalidation close or at the stop, whichever comes first. At a 0.05 percent fee per side, each coin loses 0.65 plus about 0.032 in fees at the stop, and 200 divided by that is about 293. The position size calculator does this division. Slippage on a fast candle comes on top, so the 200 should sit below the most you accept to lose.

Leverage doesn’t change the size. It sets the margin and, on isolated margin, the liquidation price. Assuming a 0.5 percent maintenance margin rate (check your exchange’s tier for a position this size), liquidation reaches 31.90 at about 40x. The leverage guide halves that and rounds down, so this trade stays at 20x or less.

A gap-only trade entering at 32.75, mid-gap, would invalidate on a close below 32.55 and put its stop 0.20 lower, at 32.35, inside the block. On the pullback, a 4h candle wicks to 32.30 and closes at 32.62. Our limit fills, and the wick takes out the gap-only stop although the candle closes inside the gap. Nothing has closed below 32.10, so this trade stays on toward 34.50. If the 32.30 low confirms five candles later, it becomes the last confirmed swing low, and we raise the invalidation to a 4h close below 32.30 and the stop to 32.10.

The cost of the deeper stop is a smaller multiple. With the same 34.50 target, the gap-only trade risks 0.40 for 1.75, about 4.4R next to our 3.0R, and pullbacks that turn inside the gap never fill our order.

When the block fails: the breaker

If the pullback keeps falling and a 4h candle closes below 32.10, this trade is over and that close is a CHoCH. One close below and then a close straight back above is a deviation: the break didn’t hold, but that close still flipped the 4h trend to bearish, and it flips back only on a close above 34.60, the last confirmed high. A long from there is a new, smaller trade against the 4h trend, with its stop beyond the deviation’s low. Two or more closes below, with a retest from underneath that gets sold, is acceptance, and the 32.10 to 32.55 band is then a bearish breaker.

That breaker fails on a close back above 32.55. We don’t short the retest itself, because a short needs a lower high and a bearish BOS first. Say the drop below 32.10 bottoms at 31.70 and the retest tops at 32.45, a lower high. Once both confirm, a 4h close below 31.70 is the first bearish BOS. The short enters on the pullback after it, in the gap that leg leaves or in the breaker below 32.45. A close above 32.45, the lower high, invalidates it before the breaker’s 32.55 top is reached. The gap above the block can turn into resistance the same way (an inverse FVG, see the fair value gap guide).

Mistakes that keep showing up

  • Marking every down candle as an order block. Only the last one before a displacement that broke structure counts, so each breaking leg has one block.
  • Entering with no invalidation. Without a cancelling close written down, stops tend to get moved lower once price trades under 32.10. Write the close first, then place the stop beyond it and size from that stop (see the invalidation level guide).

What a Finora read shows

A full (Premium) Finora read on Telegram lists order blocks and fair value gaps in its Critical Levels section. Its Trade Ideas name an entry zone, the confirmation to wait for and where the stop belongs, beyond the trend-flip level in the trend table on its chart (here a 4h close below 32.10), while you still choose the stop price and the size. Tap Watch levels under a read and Finora messages you when price touches one of its levels, before the candle closes, so check the close yourself.

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