A market is considered in balance when consolidating in a tight range for two or more days. Balance rules provide the framework for the potential scenarios and outcomes:

  • Look above and go. Prices move above the balance area high, find acceptance, and continue higher. The target should be double the balance area. In a gap situation, make sure you are aware if you are gapping right to the target. Don’t forget gap rules if it is a true gap.
  • Look above and fail. Prices move above the balance area high but fail to find acceptance and reverse back into the balance area. This is now a short with a stop above the high just made above the balance area, with a target to cover at the opposing low end of the balance area.
  • Look below and go. Prices move below the low of balance and find acceptance and continue lower. The target should be double the balance area.
  • Look below and fail. Prices move below the low of balance but fail to find acceptance and reverse back into the balance area. This is now a long with a stop below the low just made below the balance area, with a target to sell at the opposing high end of the balance area.
  • Remain in balance. Prices remain within the confines of the balance area. Responsive trade is in play. Look for smaller, counter-trend moves against the extremes of balance and/or technical/market profile nuances. It pays to trade in the direction of the developing value area and volume point of control. Responsive trades work well when a market is in balance.