Hello everyone, today I am going to talk about initial balance (IB), What it is, how you can trade it, and how you can use it to gain an edge over the market and to form a bias for your trading.
What is it?
The initial balance is very simply the price weight range that has been formed during the opening period of a trading session it's most commonly accepted as the first hour of trading.
The initial balance core concepts
Daily Open Position
They revolve around three things that help you to gain an edge on the market. So you're looking for initial balance volume you are looking at the initial balance range and you are looking at the position of the daily open.
If you see higher volume within the initial balance it indicates that bigger traders are active and interest in price at that level. So you see a lot of volume coming in early on as the new session opens it shows that the traders are willing to transact at this price they're happy with the price being where it is so this increases the likelihood of a range-bound session because you've got the big participants in they know where they want to long they know where they want to shore they know where they want to buy and sell and so on and it does increase the likelihood of a range-bound session if you get high volume on your initial balance.
If you get the low volume of course on the opposite side it shows that there is less interest in transacting at that level. The big players are really not here. You've got smaller players making very little impact on price, which then increases the likelihood of a trending move out of that session.
The other thing that you can use to tie into that is your range. This is very similar to the volume. If you're seeing a big volume you're likely to see a bigger range in price. So again bigger traders are active and interested in that level and it increases the likelihood of a range-bound session. So if you see high volume and a large range then it's more likely that you're going to be contained within that range for the duration of the session. At the same time if you see low volume it once again shows less interest in transacting at that level and increases the likelihood of a trending session.
Daily Open Position
Near IB Low
The final concept of this is your daily open. This is quite important as well so if you have a daily open that is near the initial balance low and the initial balance then moves up from there it shows that participants have driven price upon open so then you have a higher probability of this move continuing and you're already in an uptrend so it is a higher probability that this initial balance gets broken and we see a move out of it.
Middle of IB
Middle of ib shows acceptance of opening price. It increases the likelihood of a range-bound session and you can fade moves on either side of the initial balance back into the daily open. So it means that we're going to keep on chopping around this daily open and just forming a range for the rest of the day.
Near IB High
At this point, your daily open is up at the highs. Participants have driven the price down on open leading to a higher probability of a down-trending session.
Hope you found today’s article helpful.
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