All language subtitles for 2. Range principle

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.