Initial Balance and Volatility Funnel Setup from 2/14 Open

Alright guys, what's going on? So I want to go over a particular setup that occurred yesterday and this is going to include a feature that, you know, a couple times I've said is not as significant in crypto markets and I'm referring to the initial balance. But in this case, and I think in certain cases and in certain contexts it can be a valuable thing to pay attention to. So first and foremost, the area that we're going to be talking about is right after yesterday's open. So you could just tell on the price action alone it looks like something is coiling up. When we're talking about the initial balance, we're talking about this line, you know, this line right here, this is a tight initial balance, this is a wide initial balance we're talking about by default is the one hour period after market open. So the one hour range. And you could change this, some people will change it depending on what market it is to be either just a half hour period or some hours. You know, you could change it to a two hour period. For the most part, I think the best use case of it is from either, you know, 30 minutes, 45 minutes up to an hour. I have mine set to an hour. But again, this is the aftermarket open. This is the range of those first two TPO periods. So if I have it set to an hour, it's the first two TPO rotation. So if we just open up this one right now, you'll see that it's this, right? So this is the widest first candle and if there was a, if the second candle went up slightly higher, rather the second rotation went up slightly higher, you know, the initial balance would be greater. So if we look at that initial balance versus an initial balance like this, you know, first two hour, two half hour periods, one, the high of that one's there, the high of this next half hour period is there, and then we've broken outside of that initial balance in this case, so you weren't confined. Whereas if we go to the day prior, much wider initial balance and we were within this initial balance, which was the high up here, low down here, we were within that for what looks like about three hours afterwards. So there's different ways that traders will use these across different markets. You know, you could take certain plays, whether or not the initial balance is tight or it's wide, begin to ascertain whether or not we're going to have, you know, a strong impulsive trending day or a more range bound day, or you know, whether or not the opening drive takes us outside of the initial balance and we have a one time framing type of day or whether or not there's a failed, a failed opening drive and, and the market, you know, fails to maintain course in one direction and then comes back through the initial balance. There's plenty of different applications that you could see and that some traders in blockroots have shared before.

But I think that in crypto there's less use cases than there is in, let's say something like equities where there's an overnight, a cash session. With Bitcoin, you have a 24 hour market. So it's really just, you know, it's, the market is closing and then immediately opening. There's nothing that took place in between. There's no, really, there's no overnight gap. So what I say is, you know, the initial balance matters in certain context. You know, you can have an initial balance that is tight and we have a breakthrough initial balance either to the upside or to the downside. You know, it looks like it has conviction to start and then we end up creating a more balanced range day. And then you can have an initial balance that is very wide and then go on to trend hard in one direction for the rest of the day. And you know, those two types of initial balances, if you're just looking at, you know, The Market Profile 101 interpretation, more often than not those initial balances would imply the inverse.

So I think that initial balance is useful when you're applying it in certain contexts. And one of the ways that I've gone over before is looking at, let's say you have a significant daily level. So let's just say for example that you know, the market has closed through a significant low. So let's say the market, you know, let's say in this case we closed through here and we didn't close there, but we closed down here and then you had an initial balance, right, that's ultimately going to develop through a significant daily level. So imagine if, let's say for example, I'll just draw this out here is a, you know, a significant, well defended resistance over time and then we've had a candle close through. Well, the initial balance of the following day is going to give you a good idea as to what the participants think of with regard to that significant candle close. Okay. Because ultimately the initial balance is going to be part of the next day's open. And what you do say see is let's say, you know, let's say this is a really significant weekly level and you have a daily candle close through there. You know, you could pick up early on an immediate sign of activity based on that daily candle close. And you know, you might initially have an opening drive that ultimately leaves you with a very wide initial balance and then goes on to be a trending day. If anything, you know, this is an example of an initial balance that leads to a day that might not be expected when you have, you know, a wide initial balance through an area. And that's because you're paying attention to that area's open through that significant level. And it turns out, you know, the first half hour of the day we shoot up pretty high and maybe go on to continue. So this is, you know, you're essentially paying attention to the first hourly period after the open through a significant level. Right. Which in that case I would want to actually see that there's a strong opening drive. So the example that I'm going to go over, it's actually a case of a really tight initial balance which does result in a really strong trending move. But it's more than just the initial balance. Right. So what I'm going to talk about is yesterday's open. So just applying off of the basic, you know, oh, the initial balance is tight. The initial balance is why that's, I don't think that that's adequate enough. I think what you want to do is see how long you've spent within the initial balance, if it is a tight initial balance. So we're coming off of a series of pretty tight semi balanced days and we're getting tighter and tighter over the course of this structure. So a few things you could look at to determine whether you're getting tighter. Well, obviously your average sub period rotation size. So we're decreasing over time. So we go from 6525-255734-69363. So we know market conditions are tight. The volume value area range and the TPO value area range. So in just in terms of dispersion, how wide these value areas are, I mean you can see that up until yesterday morning it had been, it spiked. Right. And then begun to tighten again. So sorry, I'm drawing lines through it. 900 from 2600 down to 800. So things are tightening up right. From a volatility standpoint, from a value area standpoint. And you know, we're always going to look at price action as well. What we have is two very tight days. We have an inside day setup and we have what is ultimately a pretty balanced distribution between these days, right. Individually again might not be perfect. You have a shelf up here, you have a poor low down here. So you do have levels that you could see some sort of imbalanced activity if you revisit them. But what we're going to focus on is this initial balance. All right, so how yesterday opened with respect to the two days prior, knowing that we're, you know, we're essentially beginning to bottleneck or tighten up. So the initial balance again is the first hourly period. If we open up this initial balance, you could actually see that we spend five, five hours within it, right? So five hours within it. Most of this activity you can see if you flip this almost fits like a key right within here. So it's almost like we're filling out this little bit of inefficiency that occurred within a semi balanced structure. So semi balanced because it is not symmetrical. But you can see that, you know, it's not that most of the activity is within the value area, right. Most of the, the high volume nodes, right. Most of the large spike is within, within the value area, which obviously is the case, you know, when you're looking at the point of control and the most participation it's going to be in the value area. But just in terms of the distribution, most of, the, most of this, we would say over, over the course of this structure, if you flip this on its side, gave you a somewhat centralized, we'll say centralized structure, right. Most of the concentration is focused on the center. So all you have is really this little inefficiency over the course of the three days in this tightening period. You have a point of control that we are able to maintain, right? With relation, we are able to close with relation to our point of control above, right. So we have prices closing above the point of control. Prices closing above the point of control, right. And then ultimately the third day, which is the tightest day still above, able to close above the point of control. So you know you're settling up with some type of balance structure, right. You know that things are tightening up. You have an inside day and you're maintaining where most of the risk from just a VPOC standpoint is coming in previous initial balances. You'll see that you're not going to have a, you're, you're going to spend, you know, a lot of times you will spend, you know, clearly an hour within it, but outside of that you're going to have some type of, you're going to have some Type of opening drive or other. Excuse me, you're going to have some type of attempt either through the upside or through the downside. And then you might go on to range, right? You might have continuation, but you're going to have some type of attempt outward, right? It's unlikely that you're going to, you know, stay within the confines of the initial balance, okay? That should just be kind of clear. It's the first two. It's the first hour of the day, right? You'd have a tremendously tight day if that were the case. I don't think there's any case where you're going to have that.

If you have a case where you have a day that's inside the initial balance, the moment that you get an acceptance through that, that is clearly going to be a high probability breakout play. When you see acceptance though, because in this setup you're actually going to see that we have a false break and then you don't have acceptance. And really that false break leads to continuation in the opposite direction. So we have an initial balance that's very tight. It's within prior day's value. We have an inside day structure. Things are very tight. And you have five. You have five hours within the initial balance. So what we're going to do is go to the actual candlestick structure and just show you what this was looking at. Looking like this is market open. This is the high, right? This is the low, okay? So ultimately what we're looking at is, is the market spending the next five hours within the open high and low between that initial balance. In this case, it's a unique structure because it's perfect for a breakout, right? What you have is actually a volatility funnel that's forming. So just to go over this real quick, this on its own is not a perfect setup, right? This is not its own. It's not even a setup yet. But you're getting the prime conditions that you would want for a move, right? So we know that we're coming off of an inside day. We know that we're, you know, let's say that you're four hours into this, right? You're four hours into still maintaining that initial balance within the more balanced structure that we've come off of. And you see that price is beginning to form this sort of pennant on the low time frame. And this on its own is, you know, it's just a pattern. But what you have.