Original subtitles

We will begin with the first of the four trading principles, the range

principle. We will apply this principle in markets that are in total

equilibrium, that is, in environments where most participants at the aggregate

level converge in their valuations on the price of the asset, creating a zone

high bargaining and causing a continuous rotation in the price.

What the range principle tells us is that if the price is within a value

as long as the market condition does not change, the market is likely to

continue to generate value around the center point, so the price will most

likely be rejected when the extremes are reached.

Therefore, the type of trade we should use in this context is an extremes

a range trade where we try to buy at the bottom and sell at the top.

In other words, buy when you see a bullish reaction on the value area low

sell when you see a bearish reaction on the value area high.

In addition, if the price rejects one of the extremes of the value area, The

most likely scenario now is that the price will seek at least the level of

VPOC and, with a slightly lower probability, although still very high,

opposite end of the value area.

In other words, if the price generates a rejection at the value area low, the

probability is that price will visit the value area high and vice versa.

We can identify the context of equilibrium in different situations.

depending on the degree to which we observe the market and the type of

we use.

If we use daily profiles, session profiles, we can see that the market is

equilibrium when the price of the current session is within the value area

the previous session.

In this chart, we have an example of this.

After the close of the previous day's session, we project the trading levels

the right to identify these references.

It is these levels that we will take into account to assess the type of day

may have in the following session.

These theories come from the market profile where they studied where the

of the current session occurred in relation to the previous session in

determine the directional bias and apply one or another operative.

In this case, an opening within the value area of the previous session

a market in equilibrium and should therefore be favored to maintain this

As we can see in the chart, the second session opens within the value area of

the first session.

which should lead us to identify the principle of the range and apply an

trade, favoring the reaction at the extremes of the value area.

We can see how the price generates continuous rotations as it interacts

high and low of the value area.

It is at these points that we want to look for our entry signal.

To do this, we can use the multiple temporality and move the time frame down

identify the entry trigger more precisely.

Or, you may not want to move down the time frame and look for the signal in

same time frame. There is no one best way.

The decision is up to the trader.

Here is another example of exactly the same thing.

After opening inside the value area, the price visits the low part of the value

area where it generates a bullish rotation twice.

Then, it goes to the upper part and generates another downward rotation,

time to the downside, proving the equilibrium environment in the market.

And in the last part of the session, it manages to break below the value area.

The fact that the price does not manage to return to trading within the value

area suggests, at least initially, that the equilibrium state in the market may

have been lost.

If this is confirmed, we should apply another principle that we will see below

to try to take advantage of the potential trend movement that will

And in this other example, although it doesn't look like it because it comes

from a strong bullish imbalance, The range principle also applies.

As we said, this is determined by the opening price and as we see in this

example, it is within the previous day's value area.

In this case, it first visited the lower part of the value area from where it

reacted up to twice before visiting the upper part.

There, a new bearish reaction took place which sent the price to the middle

part, to the VPOC area of the previous day, key level from which the market

the bullish breakout.

As we can see, trading levels are very important.

Beyond the profile of single sessions, we can also apply this principle of

to a higher degree in identifying an equilibrium context in environments

the market is experiencing a large sideways movement over several sessions.

Here is an example of a range on the hourly chart.

It spans a large number of sessions, so it would be best to start a manual

profile of all this price action.

As we can see, the price is generating multiple reactions at the extremes of

value area.

Regardless of whether we are dealing with session profiles or other types of

profiles, the underlying logic is that the market context is one of

And in an equilibrium context, any move to the upside is seen as an opportunity

to sell. And conversely, any move to the downside is seen as an opportunity to

buy. This is the reason for the constant price fluctuations in these areas.

As mentioned above, this type of profile needs to be continuously updated until

the breakout movement occurs, which, in this case, occurs at the bottom.

Before the bearish breakout occurred, we can see how the price rejected the VAL

several times and the resulting reaction could only reach the VPOC and not the

VAH. This is a trace that we should keep in mind to be alert to the possibility

of an imminent breakout.

If you recall, at the beginning of the course, I said that what the price does

is just as important as what it does not do.

This is because what it fails to do, in this case, to generate a move to the top

of the profile, is a crucial fingerprint.

When the market fails to make such a move, even on multiple occasions, it is

because there is some underlying weakness which is confirmed by the

breakout to the downside.

One doubt that may arise is how to analyze those stocks that go a long way

beyond the limits of the value area.

On many occasions, and especially in real time, we may initially get the

impression that we are facing such a breakout action, at which point, as we

already know, we should stop following the profile and wait for a retracement

above its trading levels to look for a continuation in that direction.

But instead, what happens is that the market goes back into value area.

On the chart, I have marked four situations where exactly this happens.

There are two stocks where the reversal happens in the same candlestick, and two

stocks where it takes longer.

The key, of course, is whether or not it has the ability to re -enter the value

area. A phrase I like to spread is that every market action must be confirmed or

rejected by the subsequent price action.

In this case, what we are trying to confirm is the potential breakout.

And to do that, we need the price to stay out of the value area.

Therefore, it makes no difference to us if the price takes more or less time.

The key is that whenever it re -enters the value area and manages to

position itself below the VPOC, that is the moment when we will confirm this

action as a false breakout and we should update the end of the profile,

including all the actions of this failed discovery.

In the final part of the course, we will explore this concept of when to modify

the profile in more detail.

Here is another example.

As we can see, the market constantly rotates between the boundaries of the

area. Sometimes it leaves this area and penetrates the rejection zone identified

at the extremes of the profile.

But it always returns to the midpoint established in the VPOC until it finally

breaks through the top.

Again, the operation could be thought in the same time frame or in a lower one.

It is at the discretion of the trader.

The most important thing is to be clear about the prevailing context at the

levels at which we expect the price to develop our entry triggers.