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

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

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

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

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high bargaining and causing a continuous
rotation in the price.

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

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

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

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likely be rejected when the extremes are
reached.

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

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

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

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

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

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

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

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opposite end of the value area.

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

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

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We can identify the context of
equilibrium in different situations.

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

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we use.

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

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

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the previous session.

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In this chart, we have an example of
this.

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

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the right to identify these references.

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

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may have in the following session.

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

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

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determine the directional bias and apply
one or another operative.

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

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

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

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the first session.

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

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

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

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high and low of the value area.

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

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

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identify the entry trigger more
precisely.

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

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same time frame. There is no one best
way.

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The decision is up to the trader.

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Here is another example of exactly the
same thing.

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

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area where it generates a bullish
rotation twice.

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

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

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

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

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

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have been lost.

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

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

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

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

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

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

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

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reacted up to twice before visiting the
upper part.

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

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

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the bullish breakout.

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As we can see, trading levels are very
important.

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

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to a higher degree in identifying an
equilibrium context in environments

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

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

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

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profile of all this price action.

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

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value area.

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

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

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

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

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

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

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

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

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

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

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of an imminent breakout.

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

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is just as important as what it does not
do.

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

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of the profile, is a crucial
fingerprint.

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

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because there is some underlying
weakness which is confirmed by the

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breakout to the downside.

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

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beyond the limits of the value area.

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

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

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

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

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

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

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

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stocks where it takes longer.

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

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

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rejected by the subsequent price action.

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

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

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

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

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

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

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including all the actions of this failed
discovery.

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

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the profile in more detail.

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Here is another example.

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

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

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at the extremes of the profile.

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

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breaks through the top.

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

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It is at the discretion of the trader.

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

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