Overview
This lecture explains the concept of mitigation blocks in order block theory, focusing on how to identify and trade them within bearish market structures.
Understanding Mitigation Blocks
- Mitigation blocks identify areas where the market shifts direction, typically after breaking support in a bearish scenario.
- Key is recognizing step-ladder price moves (selling rallies in bear markets, buying declines in bull markets).
- Institutional reference points help define resistance (bearish) and support (bullish) levels.
- Wait for price to confirm selling pressure at anticipated resistance before taking action.
Market Structure Shifts and the M Pattern
- An M pattern forms when the market fails to make new highs and breaks below an old low, signaling a bearish market structure shift.
- The break below the recent low confirms that sellers are now controlling the market.
- Focus shifts to the range between the short-term low and high for potential mitigation block entries.
Identifying and Using Mitigation Blocks
- The last down candle before a short-term rally is crucial for identifying a mitigation block in a bearish context.
- When price revisits the old low or mitigation block after a breakdown, it is an opportunity to sell.
- Three reference points (A, B, C) help analyze retracements: A to B (initial rally), B to C (breakdown), return to A is a selling zone.
- Selling the retracement into the mitigation block targets liquidity below recent lows or support levels.
Practical Application and Example
- Each rally to a previous short-term low or last down candle can present a new sell opportunity.
- When price overshoots but stays within the body of the last down candle, the mitigation block is still valid.
- Use bodies of candles (open/close range) as key mitigation block reference, not just their lows.
- Place stops just above the mitigation block candle to manage risk.
Liquidity Voids and Equilibrium
- A liquidity void is a price area with little trading activity; the equilibrium (midpoint) can act as a price target.
- Price often moves from the mitigation block down into the liquidity void’s equilibrium after a market structure shift.
Key Terms & Definitions
- Mitigation Block — The last up or down candle before a reversal, used as a reference for entries after a structure break.
- Market Structure Shift — A change in the trend, signaled by breaking previous highs/lows.
- Liquidity Void — A zone of low trading volume, often acting as a target after structure shifts.
- Equilibrium — The midpoint of the liquidity void, serving as a common profit-taking area.
- Buyer's Remorse — When previous buyers sell after price returns to a broken support/resistance.
Action Items / Next Steps
- Review the PDF file for December 2016 ICT mentorship for more on mitigation blocks.
- Practice identifying mitigation blocks and market structure shifts on chart examples.
- Prepare questions for the next session on advanced mitigation block concepts.