Initial Balance Masterclass: First Hour Trading Strategy

All right, good morning. So, this is David from Trader Dale, and today I’m going to talk about a concept that we use here for our trading. It’s not a specific trade idea. It’s just something that traders have been using for decades to mark out the first hour of trading, called the Initial Balance. Okay? And what the Initial Balance does is it marks out the high and the low of the first hour of trading, from 9:30 a.m. to 10:30 a.m. Okay. Now, why do we use this? We use this because the biggest volume hour of the day is always going to be the first hour. And that first hour, a lot of times, will set the tone for the rest of the day. Okay? And the highs and the lows that it makes in that first hour will determine what the market is really going to do for the rest of the day after 10:30. And that’s exactly what we use it for. Okay? What is the market doing after 10:30? Are we trending? Are we reversing? Are we consolidating? Okay. And this gives us really good structure to play off of and understand where price is going after 10:30. Is price going to trend and continue to other liquidity areas and spots for price discovery, or is it going to remain inside the Initial Balance, that first hour, and pretty much consolidate for the rest of the day? Is it going to attempt to break out of one of the highs or the lows of the Initial Balance and fail? You know, these are questions that get answered at 10:30, which gives us a structure to trade after that 10:30 level. So, let’s kind of look at some examples. So, first of all, this is an example of the tool that I use, okay? It marks out the first-hour highs and lows. You can mark them out yourself. You don’t even need a tool. I happen to use a tool by Dale. Here it is right here. It’s called the Initial Balance Wave Map by Dale. Okay? And this will plot the highs and the lows and the midpoint of each Initial Balance, and it’ll keep it on the screen. Okay, and extend it for that day. Okay, there are extension levels that you can add to it as well, but I really don’t need that. So, what does the Initial Balance mean? So, after the Initial Balance in yellow, the first hour of trading, the green and the red mark the highs and lows, we want to see what price is doing. If price starts to close and expand above the Initial Balance, okay, that means price discovery is accepting higher prices, and then we can look for a trending move after 10:30, into midday and into the afternoon, and play long opportunities into the next level of liquidity. What it does do is it takes shorts off the table. Okay, let’s look at the next day. Same thing. We create the Initial Balance. We expand and accept prices above the Initial Balance. We retest the top of the Initial Balance and expand higher. Price is accepting higher prices above the Initial Balance, which indicates a trend. Okay, here is another day where price accepted price above the Initial Balance and traded higher. Okay, then eventually it came back in, meaning it accepted higher prices for a period of time. And if you look to the left, I mean, if we look far enough, I bet there was some area, a high or a low, that we might have hit here, okay, to indicate that we were going to pull back. Okay? But once price discovers and accepts price above here, there is still opportunity to go long into those upper levels. Okay, here’s another opportunity. This looks like a shortened day. No, it wasn’t a short day. It was a gap. It was a gap. So, price did accept prices above and stayed above the Initial Balance. Okay. But it never really expanded higher. Okay. Here’s a situation where the Initial Balance has been created. We expand lower, close lower, and then expand lower to other areas of liquidity before eventually pulling back to the Initial Balance low. Same thing here. The Initial Balance low has been breached. Price moves lower, and it’s accepting lower prices. Okay, when price moves back to the Initial Balance low, it holds as resistance, and even a tap back in gets rejected. Here’s another situation where we hold the Initial Balance high, meaning price is not accepting higher prices until it does. Once it does and expands higher and displaces with a Fair Value Gap, then we get a trending move. Okay, here is a fakeout where price looks to expand above but then moves back inside the Initial Balance and holds that level. And this is one of the rare times where price will breach both sides of the Initial Balance. It happens about 20% of the time that it will breach both sides, which means 80% of the time it’s going to breach at least one side. Okay. So, how do we use it? Very simple. After 10:30, if price is going to accept higher prices above, we are going to look for longs. If price accepts lower prices like here and closes below, we’re going to look for shorts. Okay? If price is inside the Initial Balance, okay, we’re really not going to do anything. Now, you can fade the tops and the bottoms of Initial Balances, but like I said, the chances of a rejection and attacking the opposite end of these Initial Balances on the same day are rare. Okay, so this would just be a scalp that actually turns into a rejection. But the real play here would be waiting for price to close below the Initial Balance low and then look to short from there. Okay, here’s the situation. Initial Balance created. We expand. Longs are good. Okay, here’s a situation where the Initial Balance is created, and we just stay within the Initial Balance pretty much the entire day. So, after 10:30, we know that the trading probabilities are not favorable because we’re in balance. Okay, here’s a situation where price moves below the Initial Balance. It closes below but doesn’t displace, and then moves back inside the Initial Balance. This is a failure to accept lower prices, moving back into the Initial Balance, where then you can look to trade back to the midpoint. It kind of acts like a Volume Profile. Pretend this is one big Volume Profile. Okay, you want to fade the extremes and trade back to high volume. The same concept. Okay, here’s a situation where price moves above the Initial Balance but fails to hold above and then rejects lower. So that way, the expansion is not on the table. All right? And if price holds that Initial Balance high after coming back in, you can fade that down to the midpoint of the Initial Balance. Okay. Here’s a situation where you had a long range here, and price did not break above the Initial Balance until about 2:00 in the afternoon, but once it did, it expanded to the next level of liquidity, which was the previous month’s high and Asia highs. Okay, here’s a situation where the Initial Balance has been created, and price just couldn’t get outside the Initial Balance all day. Therefore, after the first hour, if price is not outside the Initial Balance, the trading probabilities are not favorable. So, after 10:30, what you’re looking for is breaks above or below the Initial Balance. You’re looking for expansion above or expansion below, or a fakeout of one of these areas that you can trade back into the midpoint. Once price does break out and accept higher prices or lower prices below the IB high and IB low, there is no more countertrend trading. Okay, we could also use prior-day midpoints and prior-day levels as draws on liquidity. Okay, as you can see, price here came in and took out the Initial Balance low. All Initial Balance highs and lows eventually do get taken out. They don’t have to get taken out on the same day, but they will act as draws on liquidity. As you can see, yesterday price moved outside the Initial Balance, and late in the day it accepted higher prices and moved higher. Here’s an example of price moving outside of this Initial Balance and coming back in and tapping into the midpoint of this Initial Balance before moving higher. Midpoints of previous Initial Balances act as support and resistance. Okay? So, put this on your chart. Start playing with it. This is not something you’re going to see very often on YouTube because it’s not ICT or SMC or all this other stuff that people talk about, unicorns and things like that. It’s something that’s been used for decades by professional institutional traders, and it’s something that we can use to gauge price action and structure after the 10:30 mark. So, put it on your screen, start applying some of these things, and start looking at some of these things. Hey everyone, it’s Dale here. I hope you enjoyed the video. 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