The initial Balance concept was introduced by Peter Steidlmayer when he presented a market profile to traders. Initial Balance in price movement that occurs during the first hour of trading. In Indian Stock Market Context, the initial balance is between the high and low of the price between 9.15am to 10.15am.
Initial Balance on the Chart
For Intraday Trading the high of the Initial Balance acts as Resistance and the Low of the Initial Balance acts as Support
Narrow Initial Balance
In case the Initial Balance is narrow it is mostly like to be knocked over on either side. This means that we can expect a breakout on either side during further trading. Narrow IB near major support or resistance levels is a good setup for the successful breakout on either side.
Wide Initial Balance
In case the Initial Balance is wide then the script is likely to trade within the Initial Balance range throughout the day. Experienced Traders Initiate sell at the High of Initial Balance and Buy at the Low of Initial balance.
If the price opens above the Previous Day's High and the Initial Balance is formed above it then it is going to be a bullish day. If the price opens below the Previous Day's Low and the Initial Balance is formed below it then it is going to be a bearish day.
If unusually higher volumes are traded during the first hour then the activity will be slack after it. So, the Price and Volume of the first hour can set the trend for the day.
How to Plot The Initial Balance on Chart
Mark the High and Low of the first hour starting from 9.15am to 10.15 am for Indian Markets. It can be easily and manually done on all trading platforms. However, if somebody wants it to be automatically plotted than one can use Trading View Indicator as below.
For a Free Subscription to Trading View you can click the link below
IB Indicator Settings are as below
You can choose the colour of your choice. Also, the marking thickness of High and Low
After you complete the settings, Initial Balance on the chart will look as below
We may not initiate trades based only on Initial Balance. We need to consider all other factors along with Initial Balance to get into a trade. However, one can decide on the exit of a trade basis the boundaries on Initial Balance.