The market is always in one of two states. Every trade you take should start with identifying which state you're in — because the rules are different, and setups that work in one state fail in the other.
Balanced markets
A balanced market is where buyers and sellers have reached temporary agreement on value. Price rotates within a defined range, volume is relatively even on both sides, and neither side is aggressively seeking new territory.
In a balanced market, the edge is in fading the extremes — buying at the bottom of the balance area and selling at the top. Responsive activity dominates: participants defend the range.
Signs of balance:
- Overlapping value areas across sessions — today's value area overlaps yesterday's
- Price rotates back to the previous session's POC rather than breaking away
- Volume is higher near the middle of the range than at the extremes
- RTH stays mostly within the overnight range
Imbalanced markets
An imbalanced market is one where one side is clearly dominant and price is being moved directionally. Initiative activity takes over — buyers (or sellers) are seeking value elsewhere, not defending a range.
In an imbalanced market, the edge shifts to following the direction. Fading the trend in a genuine imbalance is one of the most expensive habits retail traders have.
Signs of imbalance:
- Value areas that don't overlap — today's value is entirely above or below yesterday's
- Price consistently breaks beyond the overnight range in one direction
- Volume concentrating at the top (bullish) or bottom (bearish) of the move
- Poor lows or poor highs being left behind
Markets don't stay in one state forever. Balance leads to imbalance (breakout) and imbalance leads back to balance (consolidation). Identifying which transition is occurring is more valuable than knowing the current state alone.
Trading each state
In balance: be patient, sell the highs, buy the lows, target the middle. Keep stops tighter until balance is confirmed — what looks like balance may be early-stage imbalance.
In imbalance: trade with the trend, buy pullbacks to value (not breakdowns below value), expect single prints and poor highs/lows to remain unfilled. The risk is catching the turn — which is why you need evidence of initiative activity stopping before fading it.
The mistake is applying balance-state logic to imbalance conditions. Recognizing the day type early and changing your approach accordingly is AMT in practice.