Profile and Flow Series: Initial Balance and Context

All right, in this video we're going to go over the initial balance. And if you are up to this point in the course, moving forward, the videos that we post will be things that we cover in live streams. This way, for anyone who is watching these for the first time, they can potentially see someone ask the questions that they might have and see how I subsequently answer them. So we tried to go over this yesterday in a live stream and I say try because we cut through the live stream and I almost forgot halfway through that the purpose was to begin this sort of directed live stream where we have an idea of a particular subject or setup and we cover it, we do a Q and A and then, you know, wrap it up with a market analysis and we'll cut that version before we post it, obviously on the blockroots course. So we almost didn't get around to it. So I think it's important that we have a separate video. Just clarifying my positioning on initial balance. But again, moving forward, the videos that we post, they will be things that you can observe in live streams. And if you are a first time viewer of this course and you weren't in those live streams, what you'll get is the Q and A that comes along with them. So the initial balance. Okay, first things first. What is the initial balance? The initial balance are these black lines that you see right here next to the TPO chart. And these under these settings, these are the first two rotations of the day. So the first two 30 minute rotations. So that makes it the first hour of the trading period, rather the first hour trading period when a session begins. So it's the first 60 minutes of the day. This can be adjusted depending on what particular market you're trading. But for the most part, the most generic application of this, the standard out of the box version is 60 minutes. This is more important in casual cash session markets. And I've said this before how I don't really prioritize this. I don't look at the initial balance and then really take it into consideration with how I am gauging what the potential day might unfold as or whether or not the day will have directional conviction or non directional conviction and it'll be more bi directional, more range. Like I don't really take this into consideration on its own. The only time I would say that this is applicable is with relation to important levels within market structure, key contextual levels. But my whole point of this is that ultimately, for the most part, when we get a close through a level and we have the following day open and we have an initial balance form. I'm more than likely going to be observing price action around that key contextual level after that close through that level. So it's very rare that I'm going to come back to it and then look at the initial balance and make a judgment based on that. But I, I suppose it is useful in that regard and that you don't have to constantly be monitoring things on the low time frame. But this is going to be very dependent on whether or not you are going to be observing that action while it is occurring anyway. Because if you're doing that, then it's not completely necessary that you pay attention to what the initial balance is showing. Again, this is more important in a cash session. So a market rather that has a cash session or, or has limited session. Right. In forex, in crypto we trade 24 hours. Right. So this is more important. And just like many other things that were sort of the basic early methods that were used with TPO charts, okay. Before volume was reconciled at the end of the day, we're going back decades, this was tpo and initial balance was used more for equities. All right. Then obviously used for futures as well, commodities, but more where there was these overnight periods where we have individual sessions. Okay. It's not 24 hour market. So the initial balance by definition in that case would be better for something like equities. Right. Or the S and P. With commodity futures it's become less important because those markets were not 24 hours and still technically are not 24 hours, but they are moving more in that direction. Okay. So there's less of any kind of disconnect or rather there's less separation with regard to that market than there was previously. So something like gold, oil, silver, corn, these have become less important because there is less of a pit session. Right. If any pit session at all. Okay. Now, with computerized trading markets being more 24 more around the clock or trading more around the clock, the idea of the initial balance is sort of lost merit or lost value. The theory is that the larger the initial balance, the more likely that the day is a non trend day. Okay. The idea is that most of the business is being done earlier in the day. The day is going to be more bi directional after that. All right. More likely to range, more likely to be balanced. Okay. And it's all relative though, so you have to be able to discern the based on what is the standard expected range for a day within a market with relation to that Initial balance. So there's going to be a question of what defines or what constitutes a small initial balance versus a large initial balance. And for this setting, I would say what I'm looking at right here, a small initial balance for me might be anywhere from three ticks. Okay? So two to three ticks. So what we're looking at on my chart is, is ultimately two to three ticks, which is we're looking at essentially 20, $30. All right? So in crypto, again, just to reiterate, I don't think that this is that predictive, right? I don't think that it is predictive really at all. The idea that the first hour of the day, if it has a high range, okay. And a large initial bounce, the idea that that might mean that the day is more likely to be bidirectional or is more likely to be a ranging balance day, just does not make too much sense to me because a lot of times we see the trends resume or become most impulsive again after we have daily sessions close out and we have market structure invalidated or validated. Whether or not it's a breakout or a breakdown, what we see right after, often within the beginning of the day, as that day unfolds, is a lot of automated activity that occurs right after candle close. Okay? So we see this on four hour charts. When you get a four hour candle close through a level, you see it on daily charts and on weekly charts as well. And the idea is a lot of systematic and algorithmic based trading systems that go off of candle closes are going to be acting on these signals. So this can often result in a day that has a very large initial balance and ends up being an imbalanced day and results in a trend and results in trend continuation or an impulsive move rather than, again, sort of a bi directional day where there's a little bit more of two way trade and back and forth activity that's balanced out in traditional markets. The idea, or the initial idea with initial balance would be a tight initial balance means that these buyers and sellers, in this case in other timeframe participant has not come in. This is the locals dealing amongst the locals, the first hour of the day, kind of clearing up most of the important business for the day. And then after this initial balance is broken that you know, it will result in a trend or an impulsive move. Okay. The day is more likely to have directional conviction. Again, don't think that this is something that holds true for crypto. I think that it's more of a matter of happenstance and randomness that this looks like it makes sense in crypto. Okay, let's just look at. And again, I have to say the most important thing is location and context. So let's just draw some, some images. One thing to draw images, one thing to go over is the importance of the open with relation to the initial balance. Okay. I think that we could use this to sort of gauge strength, especially when we have breaks of major contextual level. So let's say that here are three opens. So we have squares that are more basic Ms. DOS os, right? So we have three opens and we have. Let's just say between the first two, we have two different initial balances. They're the same size, right? These are basically the same size initial balances, but these can unfold entirely different. We can have a very impulsive first rotation that is followed by. Let me redo this with an arrow. Very impulsive first rotation that is followed by a reversal. We can have the day that just is one sided and having directional conviction has no level of rejection whatsoever. And this takes place over again an hour. This takes place over an hour as well. But we can see in this case we've covered the distance at a faster rate of speed. Been rejected. All right, we can have an initial balance that we have the open, the market moves upward, okay, and then is rejected and falls back below the open. And we can see that just from these three examples right here, what would we say has the most conviction and the most strength? Well, it's probably this one, right? Then this one and then this one. Okay? So we have in terms of orders of operation, or rather orders of importance. Excuse me, 1, 2 and then 3. Okay, so I think that the open in relation to the initial balance is probably the most important thing, right? It's showing us if there was conviction in that first hour of the day, if we were able to move away from that open, whether that's to the upside or to the downside, this is going to kind of come into context and why this is important with relation to key levels. Okay? So on its own, don't think that it's useful with relation to key. Key levels. I think that it does have application. All right, but again, if you're looking at the low time frames, this is something you're going to be watching happen in real time. And it's not necessarily the case that you're going to need to come back to the chart and say, okay, you know, we've had a initial balance with the open at the low and it's been, you know, one time framed up through that initial balance. You're arriving to the chart right now. Price is maybe up here. This is clearly a buy, right? Because this is one sided from the beginning. And we've broken through a key level. So you're going to be observing that on the low time frame. Price action likely anyway if you're trading using order flow. But again, just to cover where this is important, why it's important. So let's go back to something like. And this video is obviously done in August. I think I stated the date already. It's probably at the bottom of the chart if you can see it. So really quickly go back to the. What is it? June 10th. All right, so June 10th, this was one of the more important levels within market structure. Okay, we'll look at this first on this chart. Let's go to the daily. We'll go to the four hour. Yeah, we'll go to the four hour. Actually. Let's go to the daily real quick and make sure we load enough days. Okay, so June 10th. All right. Still downloading bars, talking about this day right here. So we could see this from here. Right? We'll put the clothes on. So we make sure that that's listed on the chart. So we look down at that. My drawing tools will work properly. Okay, not that level right here. All right, let's get rid of these drawings because they're going to drive me nuts. Now erase drawing. For some reason this is lagging a little bit. We'll leave that one. All right, let's move away from this chart before it makes another. Takes a little bit longer than expected and then just really bothers me. Okay, so let's zoom out. That's the level, right? See if that's the level right there. No, that's the 10th. It never hooked up. We're just going to manually find the close. Not going to waste anybody's time. All right, so June 10th, right here. And the line that we're paying attention to is the close. Right, the open. Because what this is, this is the swing high. All right. This is what a lot of people were basing their market structure argument around. I started looking for signs of strength above this high. This just being these being two swing points within market structure. This obviously showing more signs of strength if we're above in this. But you obviously need to take over this level before you take that one. So any kind of aggressive behavior might be using this as a signal versus this. So the idea is this is a key contextual level within Market structure. A lot of eyes on this chart. This is a level we're going to be paying attention to if we get a close through that level. All right, so.

Okay, let's get rid of this. All right, so looking at that level, it's right here now. So I got to remember that this is going to adjust. So this is the level at 98,9900 area. Okay? So we're going to be paying attention to the behavior when the market closes through this level. So at first glance, so this is the close above the level. So the market makes a swift move up through the level. Most of the volume is at the top of the structure. So you ideally want to see that you're getting away from this. But this is the initial balance in the following day. So if you're waiting for this to form, this is the first 60 minutes of the day. All right, the first sign of strength is obviously we open and the initial balance is at one extreme. So the open is at one extreme. It's not the case that we have the day that has opened and we have an initial balance that is formed back through this key level. Okay, so remember this key level is at right around 9900. So we have one sidedness already. Okay? The market opens down here. The initial balance in this case is a decently sized initial balance. So it's not that tight. So that's my point. This is a tight initial balance results in a trending day. This is a larger initial balance by those standards, leading up to that, by all standards. And this results in a very impulsive move. The most important thing is that this close through this key level invalidates or for many rather validates the idea of a breakout. So observing the first 60 minutes of the day is going to make sense because we're going to want to see that traders act on behalf of that signal. So in this case, we have a large initial balance that has directional conviction from the outset. So the market 30 minutes up about covering about $40 after that first close through that first 30 minute candle, which is for many a signal as well. So for a lot of traders, they might use a 30 minute candle close. The next move that opens up after that again has directional conviction. Okay, so this is the kind of behavior that you want to see through a key contextual level, which is as far as it could really go. When I am going to be using this or saying that this is applicable in that. The only way that I think that I would look at this as showing a sign of weakness would Be if we had something like this, where this is the open and then the initial balance incorporated activity back within the prior range. Okay. At that point we could come back to the chart or arrive to the chart for the first time and say, okay, well in this case we opened here, which means that we closed through the level. But the initial response after that close was not one of one sided strength up, but rather involved some back and forth two way trade, which is for me just a level of indecision after a major candle close through a level. Okay, so that's as much as I can say. This is important, right? It's, it's important if you're coming back to this chart and you're not watching it on the first, in that first 30 minute or 60 minute period, which I think for many, when we're paying attention to bitcoin through key levels, a lot of us are going to be having our eyes on the chart when a day is about to close, when a week is about to close and a four hour candle is about to close. And if not, I would say that it's important that you consider.

Making that time free or always keeping in mind when that period is going to expire, when you see that we are violating market structure. And, and the daily close is in an hour or two hours from now. If you don't already incorporate observing that time period into your style or strategy or approach, I suggest that you start doing it because this is going to show us how important the market feels that close or that open is. All right, the initial balance, I think you can interpret it many different ways. All right, What I like to see in the first 60 minutes of the day, most importantly conviction. All right, not this two sided activity that has something like a large initial balance, but in this case we've been ranging, but rather in this case has directional conviction. It's pretty one sided versus initial balance that incorporated us rotating back and forth. So in this case, for example, let's look at this initial balance right here. It could have resulted in us breaking through the level and then closing back at the open, which you again would interpret differently than something like this that has just been one sided. So hopefully that clarifies my opinion on initial balance and how I would go about using it. But how I also think that it's kind of obsolete for how I'm looking at the market because at this point I'm already paying attention to what's going on within, you know, that first 30 minutes, that first hour period.