A hands-on options curriculum covering real trading concepts. Read the lessons, work through examples, and test your knowledge.
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Key terms in this lesson
Lesson 4: 10.3: Balance vs. Imbalance
Learn to distinguish between balanced ranging phases and unbalanced trending phases.
1. Balanced Markets (Ranges)
A market is in Balance when buyers and sellers agree on the current value of the asset. Price trades sideways within a defined range, and volume distribution forms a classic symmetric bell curve (normal distribution).
In a balanced market, price oscillates around a highly accepted central price, and deviations to the range boundaries are quickly rejected.
★ Market State: Approximately 70% to 80% of market time is spent in a state of balance.
2. Imbalanced Markets (Trends)
When new information enters the market, the agreement is broken, and the market enters Imbalance.
Aggressive participants drive price vertically in a search for new liquidity and value. The normal distribution curve is stretched, forming a trending market. Price will continue to run until it encounters sufficient counter-liquidity to halt the move and begin a new balance phase.
Click to enlargeKNOWLEDGE RECONNAISSANCE
What characterizes a market that has entered a state of 'Imbalance'?
More lessons in this module
- 10.0: Introduction to Auction Market Theory
- 10.1: The Continuous Auction Process
- 10.2: Price Discovery and Valuation
- 10.4: Defining the Value Area (VAH, VAL, POC)
- 10.5: Understanding Market Excess & Rejection
- 10.6: Initiative vs. Responsive Activity
- 10.7: Market Acceptance vs. Rejection
- 10.8: Constructing an Auction Market Framework
- 10.9: Practical Application: Profile Playbook
- 10.10: Summary & Auction Mastery
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