Balance - Trading Glossary

This refers to trading ranges, brackets, balance areas, congestion areas, and consolidation ranges—all synonymous terms. They define price ranges in the market that are containing trade. Within these containment ranges reversion to the mean trades are the favorite of short-term traders. We often refer to these containment ranges as “paradise” for short-term traders. Bigger opportunities occur as price auctions outside of these containment ranges. Balance occurs in all timeframes. For shorter term or day traders balance may be an inside bar or multiple periods of price containment. Balance and excess are the two most important concepts you will be introduced to because they signify change or the potential for change to take place.

Balance area rules starting with inside days:

1.Market may slightly extend the range in either direction, stays in balance. Patience is in order.
2.Market explores upside breakout and is met by aggressive sellers; prices fail to be accepted above the breakout. Fade the price probe failure—the potential target is for rotation to the opposite end of balance.
3.Market explores to the upside; higher prices receive the unexpected response and attract even more buyers. Higher prices are accepted, breakout is successful. Go with price acceptance in the direction of breakout.
4.Market explores downside breakout and is met by aggressive buyers; prices fail to be accepted below the breakout. Fade the price probe failure—the potential target is for rotation to the opposite end of balance.
5.Market explores to the downside; lower prices receive the unexpected response and attract even more sellers. Lower prices are accepted, breakout is successful. Go with price acceptance in the direction of breakout.

This is a trading glossary term series of blog posts. Check out all the terms we post with the Trading Glossary label.