Smart moneyReading

Mitigation

Why institutions must come back to the area where they hedged, and how that return marks the end of a pullback.

Who mitigates and why

Central banks, hedge funds, market makers and institutional investors have an edge, and enough capital to sit through drawdown. A bank cannot place a simple buy or sell order: it has too much size, and the order would destroy the market. So it has to mitigate, breaking its orders into pieces while staying somewhat in control of price.

Hedging

Hedging means buying and selling at the same time. About 10,000 lots trade for every pip the market moves, so when the big players want to bring the market down they may push it up a little first, then place the huge trade that brings it down. They may not profit from that first trade and will have to come back later to balance it; if you can work out where, you have found the best place to enter. They might spend 3 million dollars pushing price up and then 10 million pulling it down, then take their time cashing in that 10 million, because doing it all at once is too noticeable.

The hedge entered on the way up, the main position opened at the top, and the return to the hedge level.

What mitigation looks like

Mitigation is read from order blocks, imbalances and institutional candles. It happens when traders set their positions and the smart money drives price back to that area. Institutions always have to buy to sell, or sell to buy, so the market has to come back to the specific area where they did it. Any time you see a liquidity level hold as support, a drop away from it and then a pump back into it, you are around a mitigation area.

Gold, 4-hour: price returns to mitigate the area where the selling began.

AUD/USD, 15-minute: an institutional buy-to-sell candle takes shape at the top of the range.

The same chart a little later: the mitigation of those buy orders, then the sell-off.

AUD/USD, daily: a sell-to-buy candle, and the mitigation getting filled two months later.

The end of the pullback

Mitigation is defined by the area where institutions took a buy-to-sell or a sell-to-buy order: the institutional candle. When the market comes back after the first impulse, the institutions close those orders at break even and double down on the real position; if the market is heading down, they close their buys and add to their sells. That return is the end of the pullback.

AUD/USD, 1-hour: the buy-to-sell candle and the mitigation area above the range.

Liquidity taken on both sides of a range, the institutional buy-to-sell candle, the shift in momentum that breaks structure, and the mitigation that ends the pullback.

Replay the return

Click the institutional candle on the Trade Desk and step forward to the return: the replay shows the mitigation as it happened and whether your entry was placed at the area or chasing the move away from it.

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