All language subtitles for 3. Continuation principle

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.