Initial Balance Strategy (tested on EUR/USD)

@mercury01 - 6 months ago - Forex Trading Strategies

So, guys I came across the initial balance strategy developed by J. Peter Steidlemayer in the 1980s. He was a member of the Chicago Board of Trades and is a trading veteran.

What the initial balance strategy basically says is that the initial opening hour of a trading session should be paid attention to as it can define what the rest of the session will look like.

I researched into how to use initial balance strategy for EUR/USD trading and I made some adjustments that I will share with you. Instead of paying attention to the 8 am - 9 am first hour of the London session, I decided to pay attention to the 6 am - 7 am Frankfurt open that comes before the Londin session because I found it relates more to the EUR/USD pair.

Please feel free to add your thoughts on this because I am only going to be discussing what I have tried and found out about the initial balance strategy when testing on EUR/USD

@mercury01 - 6 months ago

The first step in using this initial balance strategy is to mark out (on your chart) the lowest and highest price reached between 6 am and 7 am UTC time.

@mercury01 - 6 months ago

The purple lines indicate the highest and lowest price reached between 6 am and 6:55 am UTC time. So, i simply use the purple lines to mark out the upper and lower range between 6 am and 6:55 am also known as the Pre-Frankfurt hour.

The yellow rectangle is what I used to mark out the Asian trading session from midnight to 5:55 am UTC time.

The Pre-frankfurt hour range (6 am - 6:55am) is our initial balance and is marked by the purple lines. Notice how price broke out of the Pre-franky low (lower purple line) and reversed upward commencing an upward trend.

@mercury01 - 6 months ago

After price closed outside/below the lower purple line and you spotted the bullish engulfing reversal pattern, it would have been a buy signal for you to go long.

@mercury01 - 6 months ago

The initial balance strategy can also be used to determine the direction of the New York session.

I siimply draw a box to mark the range of the 12 pm to 1 pm hour then wait for price to breakout of the range. If the breakout results in a reversal, then i trade the direction of the reversal.

In the attached image they were two breakouts at the upper and lower edges of the blue box and a reversal followed suit.

@yokoyi - 4 months ago

It works pretty well. Basically you attempt to use the initial balance of the 12-1pm hour to pick an entry. We just wait for price to breakout and come back into the range and that serves as our entry trigger.

@emma_durban - 4 months ago

Every market opens with an auction which is basically a way for the market participants to determine the highest/lowest prices traders are willing to pay and it always leaves a foot print behind - called the initial balance. I am not sure how it applies to currencies (it may be modified for fx trading) but I know for sure it works in the stoock futures market.

@emma_durban - 4 months ago

This video is useful for initial balance traders

@headies25284 - 4 months ago

Quoted - emma_durban

This video is useful for initial balance traders

Thank you

@yokoyi - 4 months ago

I tested the Initial balance strategy on GBP/USD during the Pre-London auction hour of 12-1 PM UTC. Basically I saw the sell trigger after price exited the 12 pm hour and started reversing back into it.