Overview
This lecture explains the concept of mitigation blocks within order block theory, focusing on identifying optimal sell opportunities in bearish markets using market structure shifts and institutional reference points.
Mitigation Blocks & Market Structure Shifts
- Mitigation blocks occur when price revisits a prior short-term low or high after a market structure shift.
- A bearish scenario is confirmed when price breaks below a prior low, signaling smart money's intent to drive prices lower.
- The last down candle before a short-term rally within the broken range is the key area of interest for potential selling.
- After a market structure shift, monitor for price retracing into the mitigation block for a selling opportunity.
Identifying Entry and Exit Points
- Use three reference points: the swing high (A), swing low (B), and rebound (C) to frame trade context.
- When price returns to the mitigation block, previous buyers may liquidate, creating selling pressure.
- Look for confirmation by monitoring price reaction at the body of the last down candle in the broken range.
- Place stop losses above the high of the mitigation block candle to manage risk.
The Role of Institutional Reference Points
- Resistance/support levels, order blocks, and liquidity voids help define trade targets and exits.
- A broken support can become resistance, often due to "buyer's remorse" where trapped buyers exit positions on retracement.
- Anticipate price targets such as the mean threshold of liquidity voids or previous support levels.
Example Application
- On lower timeframes, identify the last down candle before a failed rally for short entries.
- Use the mean threshold of a liquidity void as a downside target.
- Even if price overshoots the mitigation block slightly, focus remains on the candle bodies for trade entries.
Key Terms & Definitions
- Mitigation Block — A price area where previous market participants can mitigate losses after a structure shift.
- Market Structure Shift — A break of prior support or resistance confirming a change in trend direction.
- Liquidity Void — A price range with little trading activity, often targeted as a support/resistance zone.
- Order Block — A price area where significant institutional buying or selling occurred.
Action Items / Next Steps
- Review the associated PDF for more examples and details on mitigation blocks.
- Practice identifying mitigation blocks and market structure shifts on live or historical charts.
- Prepare questions on mitigation block concepts for the next session.