Hey traders! Let’s dive into a big question today – is it better to trade based on the opening types of Market Profile or wait for the Initial Balance (IB) to form? Both approaches have their perks, and we'll chat about the pros, cons, and the best scenarios to apply each method.

If you’re not yet familiar with Market Profile’s opening types – like Open Drive (OD), Open Test Drive (OTD), Open Rejection Reverse (ORR), and Open Auction (OA) – or the various Initial Balance types (Small, Normal, Wide, Very Wide), give these terms a quick search. There’s loads of material online, but what’s often missing is a breakdown of how to actually use them in your trading. That’s where we come in!

Trading with Open Types

How to Use It? Once the market opens, wait at least 15 minutes for the first close. Now, here’s where you identify the open type and decide if you want to jump in. If you’re taking a trade, use the high or low of this initial 15-minute range as your stop loss.

When’s the Best Time for It? Trading through the opening types can work best when you're expecting a big market move – maybe due to fresh news or when there’s a clear technical divergence.

Pros and Cons Trading based on open types lets you enter early with a potentially high risk-reward ratio. However, the downside is that the accuracy of these trades can be lower. Markets often see quick, sharp moves in the first 15-30 minutes, only to come back to the opening level. So, if you’re not careful, you might get whipsawed!

Boosting Accuracy with Open Location Pairing open types with open location can help with accuracy. Locations like:

• Outside Previous Day Range (high conviction),
• Outside Previous Day Value Area (medium conviction), and
• Inside Previous Day Value Area (low conviction)

improve your odds by adding context. But remember, even with this combo, accuracy isn’t always stellar.

Trading with Initial Balance Types

How to Use It? With the IB approach, you wait for the first hour to pass, letting the Initial Balance settle. Then, classify the IB type: Small, Normal, Wide, or Very Wide. If it’s Very Wide, it’s often best to skip that trade. For the other types, consider a breakout/breakdown play at the IB high or low.

To filter out false breakouts, you can use Order Flow analysis. By watching for imbalances, trapped traders, or levels of absorption, you can better gauge if a breakout is legit. For stop losses, place them just below the IB high/low for Wide IBs, or around the midpoint for Small/Normal IBs.

When’s the Best Time for It? The IB approach is great for a standard trading day – there’s no rush, so you can assess and trade in a more relaxed way.

Pros and Cons This method has a solid risk-reward ratio, and it tends to be more accurate, especially when combined with open location types. It’s a reliable approach that provides higher conviction in trades.

The Bottom Line

In summary, trading with Open Types offers a higher risk-reward but may lack in accuracy. Meanwhile, Initial Balance types give you a solid accuracy boost, with a moderate-to-high risk-reward potential. Most of the time, sticking with the IB approach can be your best bet, while using open types works well when you expect the market to surge based on news or a technical setup.

Want to explore automated trading strategies built on Market Profile and Order Flow? Check out algoploy.com or reach out on Call/WhatsApp at 6385477299. Happy trading!