A market is in balance when it’s consolidating in a specific range. It can happen on a very short term (over a period of minutes) or a longer term (over a period of days/weeks/months/years).
The tighter the range or the longer the market spends in that range the more potent the Balance Rules become (two or more days = very potent).
These rules are nothing more than a framework of scenarios that are the most probable to happen. It’s important to remember this does not have-to happen, the market is random and a trader should always remain open to any possibility.
Probable outcomes and how to trade them:
- Look above and go: Prices move above the high of the balance area, find support (acceptance), then continue higher. The target should be double the balance area.
- Look above and fail: Prices move above the high of the balance area but fail to find support and reverse back into the balance area. This is now a short with a stop above the new high the market just made above the previous balance area high, with a target to the opposing end of balance, the balance area low.
- Look below and go: Prices move below the balance area low, find resistance, then continue lower. The target should be double the balance area.
- Look below and fail: Prices move below the low of the balance area, but find support and push back up into the balance area. This is now a long with a stop below the new low the market just made below the previous balance area low, with a target to the opposing end of balance, the balance area high.
- Remain in balance: Prices remain within the balance area. Trade it as you would rotation; look for smaller counter-trend moves against the extremes of balance and/or technical/market profile reference levels.