Understanding Rejection and Mitigation Blocks

Sep 1, 2024

Class on Rejection Blocks and Mitigation Blocks

Introduction

  • Focus on rejection blocks (RB) and mitigation blocks (MB).
  • Brief overview of market conditions: August's price action is poor, better movements expected in September.

Price Action Recap

  • Market is in a range after a strong upward movement.
  • Possible outcomes: reversal or continuation.
  • Important to recognize the higher timeframe direction to choose the best PDAs.

Key Points

  • Avoid trading in uncertain conditions; stay cash if unsure.
  • Importance of order flow in lower time frames.
  • Mention of previous trading experiences and market reactions.

Rejection Blocks (RB)

Definition

  • Occur at major highs/lows; liquidity resides here.
  • High resistance wicks often indicate a rejection block.

How to Identify

  • Look for equal bodies and long wicks at swing highs/lows.
  • Bearish rejection block: Rectangle from top of highest body to tip of longest wick.
  • Bullish rejection block: Rectangle from bottom of lowest body to tip of longest wick.

Usage

  • Work well in rangy price action.
  • Useful on any timeframe, preferred on hourly for day trades.
  • Require confirmation before trading; scaling into positions is advised.

Mitigation Blocks (MB)

Definition

  • Linked to failure swings (inability to create new highs/lows).
  • Resemble the center of a W or M pattern (neckline area).

How to Identify

  • Bearish MB: Last red candle before a failed rally.
  • Bullish MB: Last green candle before a failed sell-off.

Usage

  • Look for bounces or rejections when returning to the pattern's neckline.
  • High probability when overlapping with fair value gaps (FVG).

Signatures and Patterns

  • Importance of recognizing painting (price balancing) and spooling actions.
  • Use of fibs to measure potential retracement points (25%, 50%, 75%).

Trading Strategies

  • Focus on higher timeframe bias for direction.
  • Use PDAs, rejection blocks, and mitigation blocks with confirmation.
  • Consider historical patterns and chart setups for decision-making.

Example Scenarios

  • Detailed examples with charts on rejection and mitigation blocks.
  • Explanation of painting and its impact on price action.

Conclusion

  • Reinforcement of understanding key concepts for trading.
  • Encouragement to practice identifying and using these blocks in trading.

Upcoming Test

  • Topics: Market structure, order blocks, mitigation blocks, rejection blocks.
  • Emphasis on understanding traditional market structure as a foundation.

These notes cover the key concepts discussed during the class on rejection and mitigation blocks, highlighting their definitions, identification methods, usage in trading, and relevant strategies. They also outline the expected content for an upcoming test, ensuring readiness for evaluation.