Are you eager to learn about ICT mitigation blocks in a straightforward way? In this article, we’ll explain everything you need to know about ICT mitigation blocks from what they are and how to identify them, to how you can use them in your trading strategy with real market examples.
By the end of this guide, you’ll be able to spot and trade ICT mitigation blocks like an experienced trader. Let’s dive in.
What Is an ICT Mitigation Block?
An ICT mitigation block is a reversal pattern in trading that signals a potential change in market direction. It happens when the market fails to make new highs in an uptrend or new lows in a downtrend, especially near significant levels like order blocks, breaker blocks, or areas of imbalance.
Simply put, the mitigation concept involves selling during short-term rallies in a downtrend and buying during short-term declines in an uptrend.
How to Identify an ICT Mitigation Block
There are two types of ICT mitigation blocks:
- Bearish ICT Mitigation Block
- Bullish ICT Mitigation Block
Let’s explore each one in detail.
1. Bearish ICT Mitigation Block
A bearish ICT mitigation block forms at the end of an uptrend. Here’s how it happens:
- Price Reaches a Key Level: The price climbs to a significant bearish point, such as a bearish order block, breaker block, or after hitting a higher timeframe’s liquidity level.
- Failure to Make a New High: Instead of making a new higher high, the price makes a lower high.
- Market Structure Shift: The price then drops and breaks the previous higher low, indicating a shift in market structure to a downtrend.
This situation is known as a “failure to swing higher.” The area between the broken swing low (let’s call this point A) and the lower swing high (point B) is the bearish mitigation block.
Why Does This Happen?
Initially, traders were buying during the uptrend from point A to B. When the market fails to make a new high and starts to reverse, these traders might want to exit their positions to limit losses. When the price returns to this area (the mitigation block), it provides an opportunity for them to close their trades.
Smart traders can look to sell when the price retraces back to this mitigation block, aligning with the new bearish trend.
2. Bullish ICT Mitigation Block
A bullish ICT mitigation block forms at the end of a downtrend. Here’s the process:
- Price Reaches a Key Level: The price drops to a significant bullish point, such as a bullish order block, breaker block, or after hitting a higher timeframe’s liquidity level.
- Failure to Make a New Low: Instead of making a new lower low, the price makes a higher low.
- Market Structure Shift: The price then rises and breaks the previous lower high, indicating a shift in market structure to an uptrend.
This is called a “failure to swing lower.” The area between the broken swing high (point A) and the higher swing low (point B) is the bullish mitigation block.
Why Does This Happen?
Initially, traders were selling during the downtrend from point A to B. When the market fails to make a new low and starts to reverse, these traders might want to exit their positions to limit losses. When the price returns to this area (the mitigation block), it offers them a chance to close their trades.
Savvy traders can look to buy when the price retraces back to this mitigation block, in line with the new bullish trend.
ICT Mitigation Block vs. ICT Breaker Block
While both are reversal patterns, there’s a key difference between them:
- ICT Breaker Block: Forms after the price sweeps a significant high or low and then shifts market structure. It means the price takes out previous highs or lows before reversing.
- ICT Mitigation Block: Forms when the price fails to make a new high or low without sweeping previous levels and then shifts structure.
In a breaker block, you focus on the last up or down candle before the shift. In a mitigation block, you focus on the short-term price move (rally or decline) as your area of interest.
Real Market Example: XAU/USD Mitigation Block
Let’s look at a real example using the XAU/USD (Gold) on a 4-hour chart:
- Uptrend: The price was in an uptrend, making higher highs and higher lows.
- Reaching a Key Level: It reached a significant bearish level but failed to make a new higher high.
- Market Structure Shift: The price started to decline and broke the previous higher low, signaling a shift to a downtrend.
- Formation of Mitigation Block: This created a bearish ICT mitigation block between the broken low and the lower high.
- Trading Opportunity: When the price retraced back to this mitigation block, it provided a great opportunity to enter a sell trade.
By understanding and recognizing these patterns, you can enhance your trading strategy and potentially improve your results.
Conclusion
Understanding ICT mitigation blocks can be a valuable addition to your trading toolkit. By learning how to identify these patterns and incorporating them into your strategy, you can make more informed trading decisions. Remember to practice identifying these setups on charts and consider the overall market context before entering a trade. Happy trading!
Frequently Asked Questions (FAQs)
he main difference lies in how the reversal occurs. An ICT breaker block forms after the price sweeps a significant high or low and then shifts market structure. This means the price takes out previous highs or lows before reversing. In contrast, an ICT mitigation block forms when the price fails to make a new high or low without sweeping previous levels and then shifts structure. In a breaker block, traders focus on the last up or down candle before the shift, while in a mitigation block, the focus is on the short-term price move or rally.
You can use ICT mitigation blocks to identify potential reversal points in the market. By recognizing when the price fails to continue its trend and shifts structure, you can anticipate where other traders might exit their positions. This creates opportunities to enter trades in the new direction of the trend. For bearish mitigation blocks, you can look for selling opportunities when the price retraces to the mitigation area. For bullish mitigation blocks, you can look for buying opportunities.
Institutional reference points are key price levels that are significant to large market participants like banks and financial institutions. These include order blocks, breaker blocks, and areas of liquidity. They are important because they often act as strong support or resistance levels where the price is likely to react. In the context of ICT mitigation blocks, these levels are where the initial failure to make a new high or low occurs, signaling a potential reversal.
Yes, ICT mitigation blocks can be applied across different timeframes and various markets, including forex, stocks, commodities, and indices. The key is to ensure that the timeframe you choose aligns with your trading style, whether it’s day trading, swing trading, or long-term investing. Always consider the market context and other technical factors when applying this concept.
Common mistakes include:
Not Confirming the Market Structure Shift: Ensure that the price has indeed broken the previous high or low to confirm the shift.
Ignoring the Overall Trend: Always consider the bigger picture to avoid trading against the dominant trend.
Neglecting Risk Management: Even with a solid setup, always use appropriate risk management techniques like setting stop-loss orders.
Overtrading: Not every mitigation block will result in a successful trade. Be selective and only trade setups that meet all your criteria.
