Initial Balance

Initial Balance (IB) simply means price range developed in the Periods- A & B. Day's early extremes are formed in IB, which may or may not hold for the day. In the old times, dating back to centuries, during the auction of many things from soybean to cattle, it was observed that only locals from nearby area did participate during early hours of the market opening and are joined later by the influential traders from the outside. Thus, locals formed base for the outsiders to act upon.

However nowadays we are globally connected marketplace, which runs almost 24 hours in online mode, so no longer there exist such a distinction in the market activity. But let me assure you, no matter what, the sum total of human behavior is still same! If we plot the hypothetical distribution curve of human behavior over decades- its pattern would remain same! That’s why, though IB is relatively ambiguous element nowadays; still IB matters even today & it should be considered simply as a 'base' of the market activity for rest of the day. Look at Base i.e., IB with regards to following: -

1. Small base means lack of early market conviction; while large base means just opposite.

2. A small base is easy to disturb than a larger base.

3. Day types are based on the relationship of magnitudes of RE & IB. It is discussed later in detail.

Average daily range of each Underlying instrument (UI) varies, so learners must track their own UI of choice (UIC) at least over a month to get fair idea of average daily range & magnitude of IB for your UIC.