Initial balance breakout

Why it works

During the first hour, local traders establish a range. When larger participants enter with conviction, they push price outside it.

A narrow IB relative to recent days means the market has not yet found balance and a range extension is more likely.

The rules

Setup

• Mark the high and low of the first hour of the session.
• Compare the IB width with the average of the last ten sessions: narrower is better.

Entry

• Buy on a 5-minute close above the IB high (sell below the IB low), in the direction of the daily trend.

Stop loss

• Back inside the IB, at its midpoint.

Exit and management

• Target 1× the IB width beyond the breakout, then trail.

Filters that improve it

• Skip days with major news inside the first hour.
• Skip if the IB is wider than its 10-day average.

Worked example

Illustrative US 100 example: the IB is 19,500–19,560 (60 points, narrow). A 5-minute candle closes at 19,570. Buy, stop at 19,530, target 19,630.

Illustrative numbers, not a recommendation.

Common mistakes

• Trading both directions on the same day.
• Entering on a wick instead of a close.

How to practise it

In Candlemind choose US 100 or US 500, read 5-minute candles and mark the first hour after the New York open before deciding.

Pre-trade checklist

1. First-hour range marked
2. IB narrower than average
3. Close beyond the IB
4. Direction agrees with the daily trend
5. Stop at the IB midpoint

Frequently asked questions