Initial Balance Breakout Signals [LuxAlgo]

The Initial Balance Breakout Signals help traders identify breakouts of the Initial Balance (IB) range.

The indicator includes automatic detection of IB or can use custom sessions, highlights top and bottom IB extensions, custom Fibonacci levels, and goes further with an IB forecast with two different modes.

🔶 USAGE



The initial balance is the price range made within the first hour of the trading session. It is an intraday concept based on the idea that high volume and volatility enter the market through institutional trading at the start of the session, setting the tone for the rest of the day.

The initial balance is useful for gauging market sentiment, or, in other words, the relationship between buyers and sellers.

• Bullish sentiment: Price trades above the IB range.
  
• Mixed sentiment: Price trades within the IB range.
  
• Bearish sentiment: Price trades below the IB range.
  

The initial balance high and low are important levels that many traders use to gauge sentiment. There are two main ideas behind trading around the IB range.

• IB Extreme Breakout: When the price breaks and holds the IB high or low, there is a high probability that the price will continue in that direction.
  
• IB Extreme Rejection: When the price tries to break those levels but fails, there is a high probability that it will reach the opposite IB extreme.
  

This indicator is a complete Initial Balance toolset with custom sessions, breakout signals, IB extensions, Fibonacci retracements, and an IB forecast. All of these features will be explained in the following sections.

🔹 Custom Sessions and Signals



By default, sessions for Initial Balance and breakout signals are in Auto mode. This means that Initial Balance takes the first hour of the trading session and shows breakout signals for the rest of the session.

With this option, traders can use the tool for open range trading, making it highly versatile. The concept behind open range (OR) is the same as that of initial balance (IB), but in OR, the range is determined by the first minute, three or five minutes, or up to the first 30 minutes of the trading session.

As shown in the image above, the top chart uses the Auto feature for the IB and Breakouts sessions. The bottom chart has the Auto feature disabled to use custom sessions for both parameters. In this case, the first three minutes of the trading session are used, turning the tool into an Open Range trading indicator.



This chart shows another example of using custom sessions to display overnight NASDAQ futures sessions.

The left chart shows a custom session from the Tokyo open to the London open, and the right chart shows a custom session from the London open to the New York open.

The chart shows both the Asian and European sessions, their top and bottom extremes, and the breakout signals from those extremes.

🔹 Initial Balance Extensions



Traders can easily extend both extremes of the Initial Balance to display their preferred targets for breakouts. Enable or disable any of them and set the IB percentage to use for the extension.

As the chart shows, the percentage selected on the settings panel directly affects the displayed levels.

Setting 25 means the tool will use a quarter of the detected initial balance range for extensions beyond the IB extremes. Setting 100 means the full IB range will be used.

Traders can use these extensions as targets for breakout signals.

🔹 Fibonacci Levels



Traders can display default or custom Fibonacci levels on the IB range to trade retracements and assess the strength of market movements. Each level can be enabled or disabled and customized by level, color, and line style.

As we can see on the chart, after the IB was completed, prices were unable to fall below the 0.236 Fibonacci level. This indicates significant bullish pressure, so it is expected that prices will rise.

Traders can use these levels as guidelines to assess the strength of the side trying to penetrate the IB. In this case, the sellers were unable to move the market beyond the first level.

🔹 Initial Balance Forecast



The tool features two different forecasting methods for the current IB. By default, it takes the average of the last ten values and applies a multiplier of one.

• IB Against Previous Open: averages the difference between IB extremes and the open of the previous session.
  
• Filter by current day of the week: averages the difference between IB extremes and the open of the current session for the same day of the week.
  

This feature allows traders to see the difference between the current IB and the average of the last IBs. It makes it very easy to interpret: if the current IB is higher than the average, buyers are in control; if it is lower than the average, sellers are in control.

For example, on the left side of the chart, we can see that the last day was very bullish because the IB was completely above the forecasted value. This is the IB mean of the last ten trading days.

On the right, we can see that on Monday, September 15, the IB traded slightly higher but within the forecasted value of the IB mean of the last ten Mondays. In this case, it is within expectations.

🔶 SETTINGS

• Display Last X IBs: Select how many IBs to display.
  
• Initial Balance: Choose a custom session or enable the Auto feature.
  
• Breakouts: Enable or disable breakouts. Choose custom session or enable the Auto feature.
  

🔹 Extensions

• Top Extension: Enable or disable the top extension and choose the percentage of IB to use.
  
• Bottom extension: Enable or disable the bottom extension and choose the percentage of IB to use.
  

🔹 Fibonacci Levels

• Display Fibonacci: Enable or disable Fibonacci levels.
  
• Reverse: Reverse Fibonacci levels.
  
• Levels, Colors & Style
  
• Display Labels: Enable or disable labels and choose text size.
  

🔹 Forecast

• Display Forecast: Select the forecast method.
  - IB Against Previous Open: Calculates the average difference between the IB high and low and the previous day's IB open price.
  - Filter by Current Day of Week: Calculates the average difference between the IB high and low and the IB open price for the same day of the week.
  
• Forecast Memory: The number of data points used to calculate the average.
  
• Forecast Multiplier: This multiplier will be applied to the average. Bigger numbers will result in wider predicted ranges.
  
• Forecast Colors: Choose from a variety of colors.
  
• Forecast Style: Choose a line style.
  

🔹 Style

• Initial Balance Colors
  
• Extension Transparency: Choose the extension's transparency. 0 is solid, and 100 is fully transparent.