Balance vs imbalance

Markets spend their time in one of two broad states. Getting this right before anything else prevents the most common mistake: using a trending idea in a rotating market, or the reverse.

Balance

Definition

Balance is a period where buyers and sellers broadly agree on value. Price rotates back and forth inside a range, and the profile tends to look like a bell curve with a clear centre.

• Edges of the range tend to get rejected.
• The middle (around the point of control) acts as a reference that price returns to.
• Breakout attempts often fail and come back inside.

Imbalance

Definition

Imbalance is a period where one side is clearly more motivated. Price moves directionally to find a new area where business can be done, and value migrates with it.

• Pullbacks are shallow and get bought (or sold) quickly.
• Volume builds at successively higher (or lower) prices.
• The developing point of control moves in the direction of travel.

The cycle

Markets cycle: balance → imbalance → new balance. A break out of balance either gets accepted (price builds outside the old range — a new auction starts) or rejected (price returns inside and often travels to the other side of the range).

Trading implication

Ask the market-state question at the start of every session and again whenever price reaches the edge of a range. If you can't tell which state you're in, that uncertainty is information: it's a reason to be smaller or to wait.