When the market is balancing within a timeframe, there are five potential outcomes. These are known as balance rules. To set a trading bias, we need additional evidence before executing trades at strategic locations. First, let’s define balance.
Balance occurs when the price oscillates within a range, encountering resistance at the upper zone and support at the lower zone. This process reflects buyers and sellers reaching a consensus on fair market value without aggressively trading beyond this range. When price approaches resistance, buyers exhaust, or sellers enter, and the reverse happens at support.
For example, if NF stabilizes between 24,600 and 24,800 points, and we see price movements around this established range at 80-120% (or 180-240 points), balance is forming. This is seen in price fluctuations such as 24,810 high, 24,600 low, followed by 24,830 high, 24,620 low, and so on. Charts typically show price rotations within this box, with a composite profile resembling a bell shape. Short-term balance lasts 3-5 days, but it can extend to 7-10 days. Duration is not fixed.
Now, the balance rules and trading strategies:
1) Buy when the price reaches the balance extreme, placing stops well below balance, and target mid and opposite extremes. Conversely, short at extremes aiming for the opposite end.
2) Look above balance, retest near the high, reject, then extend upward.
3) Look below balance, retest near the low, reject, then extend downward.
4) Look above balance, fail, re-enter balance, and move to the opposite side.
5) Look below balance, fail, re-enter balance, and move to the opposite side.