Balanced Price Range Breakdown

Summary

In this advanced trading tutorial, the speaker explains the concept of 'balanced price ranges' (BPRs) and how they can be used to predict price movements. By identifying liquidity points, inefficiencies like volume imbalances and fair value gaps, and observing price action during events such as the FOMC, traders can spot BPRs to assess future price behavior. The speaker details how price is 'rebalanced' when inefficiencies are corrected and how this insight can be used to forecast breakout or reversal trends. This method helps traders refine their approach and gain an edge in their strategy.

Takeaways

• 😀 A balanced price range (BPR) is a key concept in trading, helping to predict price movements and how prices may reach certain levels.
• 😀 A dealing range is defined as a price leg that has cleared both sell-side and buy-side liquidity, indicating where price action may settle.
• 😀 A price leg that clears both sell-side and buy-side liquidity becomes a 'dealing range', which forms the basis of the balanced price range concept.
• 😀 When price retraces into areas of inefficiency, such as volume imbalances and fair value gaps, these need to be 'rebalanced' to complete the price move.
• 😀 The balance price range is established once price moves away from an area after fully rebalancing inefficiencies, and it signals that this range will likely not be revisited.
• 😀 The midnight open level can serve as a reference point for when a price imbalance is aligned with a specific time, helping to predict price action at certain times.
• 😀 When price revisits a previously imbalanced area, it is typically to reprice and balance the inefficiencies rather than to create new imbalances.
• 😀 The concept of a paint roller analogy is used to explain how price moves repeatedly through a range, filling inefficiencies and completing the rebalancing process.
• 😀 A fair value gap that has already been rebalanced does not need to be revisited by price, which is a key factor in identifying breakaway gaps and predicting price trends.
• 😀 Once the balanced price range is created and respected, if price returns to it, it is expected to trade through it, indicating a likely continuation of the trend.

Q & A

What is the balanced price range (BPR) concept in trading?

The balanced price range (BPR) refers to a price area where both buy and sell side liquidity have been cleared, creating a price range that is efficiently balanced. It signifies a price zone where inefficiencies in price have been rebalanced, and once price moves out of this range, it is unlikely to return to it unless certain conditions are met.

How do you identify a dealing range in the market?

A dealing range is identified when price clears both sell side and buy side liquidity, forming a leg that captures both. For example, after a swing low clears short-term sell-side liquidity, and the price runs higher to clear buy-side liquidity, this price leg becomes a dealing range.

What role does the FOMC price action play in understanding the BPR?

FOMC price action, with its back-and-forth nature, often provides good examples of a balanced price range. It shows how price moves between areas of liquidity and inefficiencies, helping to highlight where the BPRs form and how they influence future price movement.

What are inefficiencies in price, and how do they impact the market?

Inefficiencies in price refer to areas where there is a volume imbalance, a fair value gap, or other price discrepancies. These inefficiencies can cause price to retrace and reprice, as the market seeks to fill these gaps and restore balance before continuing in its direction.

Why is it important to track the midnight open in trading?

The midnight open is a significant reference point, as it marks the start of the new trading session. It is often aligned with volume imbalances and can act as a key level, where price behavior around this level can indicate whether the market will trend in a particular direction or consolidate.

How does a fair value gap relate to a balanced price range?

A fair value gap is an inefficiency in price where price has not fully rebalanced the previous movement. When price trades into these gaps, it begins to fill them. However, the gap is not fully balanced until price has moved in the opposite direction through it, completing the rebalancing process.

What is the significance of candle bodies in determining price rebalancing?

Candle bodies are significant because they represent the main trading range within a price movement. When the candle bodies hold within a fair value gap or volume imbalance, it indicates that the area has been efficiently rebalanced. Wicks may show temporary rejections but the candle bodies confirm where price is truly holding.

What happens when price moves out of a balanced price range?

Once price moves out of a balanced price range (BPR), it is typically unlikely to return to it unless there is a specific reason or significant new liquidity to be captured. This indicates that the price has efficiently rebalanced all inefficiencies within the BPR and is ready to continue in the direction of the break.

How do you identify when a breakaway gap is forming?

A breakaway gap forms when price has fully rebalanced a previous inefficiency, and there is no need for it to return to the area. Price will typically move away from the BPR and may form a new gap in the process, signaling the start of a strong directional move.

Why do certain inefficiencies need to be rebalanced multiple times?

Some inefficiencies require multiple rebalancing actions because price moves back and forth, sometimes creating new gaps or imbalances. These inefficiencies can be partially filled initially but may need further retracement to be fully rebalanced, especially if the market is consolidating in a larger range.