Chapter 2 lesson 1 - Mitigation blocks Flashcards
What are the 3 main reference points to time?
On a yearly level: Quarter of the year that we’re in
On a weekly level; Day of the week
On a daily level; Time of the day
What other factors, or confluences should you consider when trading mitigation blocks?
Market structure shift is critical to trading the mitigation blocks. The mitigation blocks should also align to your bias.
What is a reference point to price called?
A reference point to price is called a price array.
How is a bearish mitigation block formed?
- A swing high is formed.
- A swing low is formed.
- A LOWER HIGH is formed
- Price reverses and runs below previous swing low, creating a lower low.
- The last down close (or consecutive down close candles in the swing low) is the mitigation block.
- Price returns back to Mitigation Block.
- This return to the Mitigation Block allowing interbank traders to mitigate long positions & add to their short positions as the market reprices lower.
How is a bullish mitigation block formed?
- A swing low is formed.
- A swing high is formed.
- A HIGHER LOW is formed
- Price reverses and runs above previous swing high, creating a higher high.
- The last up close (or consecutive up close candles in the swing high) is the mitigation block.
- Price returns back to Mitigation Block.
- This return to the Mitigation Block allowing interbank traders to mitigate short positions & add to their long positions as the market reprices higher.
What do we mean by reference point to price?
Where do we expect price to trade to, and where do we expect price to react off of.
What is the significance of the mitigation block?
The purpose of the mitigation block is to provide institutional traders that are trapped buyers an opportunity to mitigate the trades.
On higher time frames, it can be used as an area of reaction/interest to determine the bias.
On the lower time frames it can be used as an entry point.
What should you do you when prices struggles to break above the previous high?
When you see it struggles to break the high, wait and see whether price breaks the low. If it break the swing low, look for the mitigation block.
How do traders end up becoming trapped buyers?
In a bearish mitigation block, buying takes place between the swing low and the lower high.
If it becomes more desirable for the algorithm to seek sellside liquidity, price will not move above the swing high. Instead, price breaks below the swing low, creating a lower low.
When price breaks the swing low, buyers who bought between the swing low and lower high are trapped buyers.
In a bullish mitigation block, selling takes place between the swing high and the higher low.
If it becomes more desirable for the algorithm to seek buyside liquidity, price will not move below the swing low. Instead, price breaks above the swing high, creating a higher high.
When price breaks the swing high, buyers who bought between the swing high and higher low are trapped buyers.
How does the algorithm end up freeing trapped institutional traders?
In a bearish mitigation block, the last down candle in the swing low, aka the mitigation block, becomes an institutional reference point for the algorithm.
After a lower low is created, the algorithm then trades back to or above the mitigation block to give institutional traders an opportunity to mitigate their long trades. It also gives them an opportunity to strengthen their short trades.
In a bullish mitigation block, the last up candle in the swing high, aka the mitigation block, becomes an institutional reference point for the algorithm.
After a higher high is created, the algorithm then trades back to or below the mitigation block to give institutional traders an opportunity to mitigate their short trades. It also gives them an opportunity to strengthen their long trades.
Is the mitigation block repetitive?
This pattern repeats itself, and should be traded until an anticipated resistance point, eg old FVG, old imbalance or old order block.
