Mitigation
The market more often than not has to come back to mitigate previous orders. Before diving deep into this episode, we rewind a bit to look back at ‘impulses and corrections’ within the market - these corrections often happen so orders can be mitigated.
What is the definition of mitigation?
It is ‘the action of reducing the severity, seriousness, or painfulness of something’
Mitigation in the FX markets happens all the time.
The big boys that are pushing the market will often need to get out of positions that are in drawdown to avoid causing too much damage to capital.
These flows can be seen within the market using technical analysis and can be used to our advantage.
Although the big boys control the market you have to understand that these players will be battling against one another for winning positions. Trading is a game and the players with the most order flows in their intended direction will be the winners within the market.
However, because these larger institutions and players have significant capital within the market they can push the market back in their intended direction in order to suppress their losses or even get small wins out of the market.
When our positions go into drawdown we do not have the capital to push the market back in our intended direction. We have to put in damage limitations such as stop losses in order to get out of these positions without damaging our capital and blowing accounts.
How can we use this to our advantage?
From the techniques covered in the market Phases video, we know the market will move in both impulses and corrections.
These corrective periods are often where you are seeing larger institutions attempt to push price back in their direction in order to get out of positions potentially in drawdown from the initial impulse.
Because of this, we now know that once those orders have been mitigated it is highly likely that we will see a spring of liquidity come into the market creating that next impulse.
https://www.tradingview.com/x/EXI4mZC3/
This screenshot is a drawn example of this.
So by using the technical analysis you have already learnt such as patterns alongside additional smart money concepts that you will learn within this stage. We can identify the most probable areas that these orders will be resting and therefore use them to our advantage.
But you can see mitigation occur on all timeframes and often when you have just been triggered into a position (which is why the market will often mess around within your area of interest before a committed move).
If you are in a buy limit position that is sat on a key area maybe you will often see the market reject when it hits your level. However, if the force of selling (in this example) is too strong you can see this level broken and then your previous orders change to resistance as traders that are stuck on the wrong side of the trade push price back up to mitigate their orders and get out of the position for break even.
It’s really fascinating to watch if you can see it and of course this happens on all timeframes, small and large.