Part of volume profiling includes day classification, or categorized a trading day based on how the day’s trading unfolds. However in order to categorize a trading day, the initial balance is a key measurement to help with the classification.

The initial balance is defined as the 1st hour of regular trading hours (RTH), or from 9:30am to 10:30am EST. As part of my research, I wrote a NinjaTrader Strategy that determines the IB for the ES, as well as important information such as:

• The IB range
• How often the IB High and IB Low is broken
• How often at least 1 side is broken
• How often both sides are broken
• What the most common IB range is
• What the standard deviation of the IB range is

This in turn provides us with the foundation with which to perform an automated day classification strategy, which will be coming shortly.

Here are the results from the study:

As we can see from the data, the Mean IB has been 9.57 points for the ES with a Standard Deviation of 5.87. And based on the frequency chart we can see that 8 is the most common range (Rounded) with 1 standard deviation being between a 5 and 10 point range, which 2 standard deviations have ranges between 3 and 20 points.

Additionally we can see that over the past 5 years, we have broken the IB range 66% of the time (meaning we moved higher that the highest point in the IB) while we broke the IB low 40% of the time. Additionally we broke at least 1 side of the IB 98% of the time, while we broke both sides on 28% of the time. Not shown is breaking neither side of the IB at only 2%.

What I found interesting is that 1 side of the IB is broken 98%. That is a very high probability and it is possible that one could develop a trading system around this.

And as all good research does, this creates new questions to answer…

• Is there a correlation between IB range and a particular day classification (Such as a trend day, for example)?
• Is there a correlation between IB volume and a particular day classification?

Next up, day classification and frequency.