Definition

The “Initial Balance” (IB) is often used in Market Profiling and Volume Profiling techniques as a way to help classify the type of day we can expect to have. The IB is defines as:

The market activity that takes place in the first hour of regular trading hours (RTH).

This activity is often thought of as being very important because it shows the market activity that happens from all of the decision that were made over-night. The first hour of trading is also, on average, the most active compared with the other trading hours (The last hour is the 2nd most active) meaning most trading decisions are being made during this first hour and thus you can usually get a good feel for what people are thinking during the IB period.

Obtaining the IB is quite easy with 60 minutes RTH bars but other software packages also  will place horizontal lines on other time frame and bar type charts.

From the IB, you can derive a few important metrics:

IB High: The high of the IB period

IB: Low: The low of the IB period

IB Range: The IB High – IB Low

These metrics can help you to categorize Day Types. For example, a Non-trend Day always has a small IB while a Trend Day always has a wide IB. This in turn can help with Day Type prediction which in turn can help give your strategy an advantage if you know your trading strategy works well with certain Day Type, while not working as well with other Day Types.

Research

Here are some articles on research I’ve done on the IB:

Initial Balance Study for the ES

Future Research

Here is a list of research I plan to do in the future, but haven’t yet done:

• IB Volume Study and look for correlation between IB Volume and Day Type

Other IB Articles and Research

Rancho Dinero IB Breakout