For decades, the magnetic direction finder (MDF) technique has been used to give the azimuth of return stroke (RS) in cloud‐to‐ground lightning (CG). Due to the possible polarization error produced by inclined lightning channels, cloud flashes are excluded by most MDF waveform discrimination procedures. In this study, the capability of the orthogonal magnetic coils in determining the azimuth of the initial breakdown pulses (IBPs) and leaders in CG is analyzed and discussed. First, a lightning orthogonal magnetic field sensor with high sensitivity (about 33 nT/V) as well as broad bandwidth (3 kHz to 2 MHz) has been developed. According to the transmission line model, RSs with current 10 kA occurred within 500 km could be detected by this system theoretically. Thereafter, a theoretical analysis was derived in order to evaluate its polarization error with arbitrarily oriented lightning channels. In order to overcome the effect of random nonvertical channels on orientation results, a statistical MDF method is proposed. A field lightning observation was conducted in the year 2017, in which RSs, leaders, and IBPs in CG or cloud flash from two thunderstorms are oriented by the proposed MDF technique. The average azimuth difference between the mathematic expectation of leaders and corresponding RSs is 2.4°. Most of the azimuth in IBPs lies within the region of radar composite reflectivity above 45 dBZ, which indicates that the initiation location of lightning flashes in this study mostly located in these strong echo regions.