Original subtitles

Let's move on to the second trading principle, the continuation principle.

We will apply this principle in markets that are one -sidedly unbalanced.

In these environments, most participants at the aggregate level disagree on

their valuations of the price of the asset, and their actions cause the

to initiate an imbalance in search of a new zone of acceptability where price

and value converge and participants return to trading.

What the continuation principle tells us is that if price attempts to enter the

value area and fails to do so, by being rejected at the VA end or elsewhere, it

will most likely initiate an imbalance in favor of that direction.

One point to bear in mind is that price can come from outside the value area or

from inside.

The trading logic would be exactly the same.

Trading with the continuation principle will therefore be to wait for the price

to approach the extremes of the value area, and generate a sufficient reaction

to them to create a trend movement that moves the market away from the value

area.

This is the post breakout test trade.

The price leaves the value area and creates acceptance.

This acceptance sets the most likely direction to be in favor of the previous

breakout. In other words, if the price is above a value area or is coming out

a breakout profile from above, the main scenario would be to wait for a test of

that value area high in order to look for the continuation of the uptrend.

On the other hand, if the price is below a value area or comes from a break of a

profile from the bottom, the main scenario would be to wait for a test of

value area low in order to look for the continuation of the bearish movement.

Here is the first example.

As we can see, the market opens within the value zone of the previous session,

so at this point the context is one of equilibrium and therefore the trade to

apply would be the range trading principle.

The market generates two bullish reactions at the bottom of the value

examples of the application of the range principle.

But from there, a context of imbalance is generated that manages to break the

value area of its upper part.

At this point, the market context changes, and so should the trade to be

applied.

Knowing at this point that the directional bias is now bullish, we will

the trading level above which we will wait for the price to confirm the buy

opportunity.

This level is none other than the value area high of the broken profile.

The key question is how do we know that the imbalance has been accepted?

In this example, how do we know that the bullish breakout is effective and not a

false breakout?

From a volume profile analysis point of view, we will simply be left with the

definitive fingerprint that the price does not have the ability to re -enter

value area.

This is ultimately the signal that alerts us that such a price breakout has

failed, and therefore the market context has changed again.

Anything short of an effective re -entry into value area is a signal that we

need to watch for in order to continue to favor the continuation of the

imbalance movement.

And by effectively re -entering, I mean developing some price action back into

the value area so that there is evidence of acceptance to trade at these price

levels. What happens in this example is that the market generates a strong

reaction at the value area high of the profile, and that is where we would get

our signal to enter the market.

Here are two more charts of the beginning of a bullish continuation.

In the example on the left, the opening is above the value area high of the

previous session's profile.

So the first interpretation we have to make is that there has been an imbalance

to the upside, where buyers have had enough capacity to move the price away

its last value.

With this basic reasoning, where the market seems to indicate that the buyers

are in control, The first scenario approach would be to wait for some kind

test before continuing the development in favor of the imbalance, in this case

to the upside.

The price is approaching the value area, leaving two clear reactions on the

value area high.

These would be our signals to go long.

In the example on the right, the initial context is different as the opening

takes place within the previous day's value area.

The initial scenario, which we already know, would be to wait for the reaction

on the extremes of the value area, which favors the application of the range

principle. But what happened is that it quickly positions itself effectively

above this value area, changing the context and thus activating the scenario

the application of the continuation principle.

After several reactions on the high of the value area that prevent the re

into the range, the continuation of the bullish imbalance takes place, moving

away from the range.

In this last example, analyzing the principle of continuation on session

profiles, we have an example of a bearish continuation.

The market opens below the value area of the previous session, so the main

scenario would be to look for the acceptance of the bearish imbalance at

value area low of the profile.

And indeed, the market rejects the possibility of re -entering the range

generates a reaction that initiates the continuation of the bearish imbalance.

In terms of longer -term trading, where we analyze more price action and try to

identify larger structures, here is an example that we have already seen using

the continuation principle.

This is an accumulation area where, after an imbalance occurs, the market

generates the bullish breakout and returns to the value area to see if this

discovery is accepted or rejected.

In this case, the attempt to re -enter the value area is rejected, confirming

the acceptance of the imbalance.

and giving rise to the bullish continuation out of the area.

This other example is of similar application, but in reverse.

It is a distribution area where, after a bearish imbalance is created, the

market returns to the value area and confirms the breakout by not reentering

area. This non -reentry takes the form of the reappearance of lower -priced

sellers who use the lower zone of the value areas to enter aggressively and

generate a new bearish impulse.