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Finding Entry- and Exit Points, Scenario 2: Breaking Kinetic Equilibrium

As a basic principle, J-Chart has moved beyond the generation of fixed time interval analysis and integrates the "Kinetic Equilibrium" concept, i.e. markets tend to achieve a "Kinetic Equilibrium" and then subsequently break it. It is an endless cycle of price obtaining equilibrium and then breaking it which leads to imbalance. In order to be able to identify this process, we need a concept of time-independent data combination.

Using non-fixed time intervals to identify equilibriums

Consequently, utilizing flexible time intervals allows the identification of Kinetic Equilibriums — which need different lengths of time to develop — and the process of "Breaking" can be used for trading activities.

A Kinetic (Dynamic) Equilibrium results from a Balance Point with 2 corresponding prices. The Balance Point is the center of the actual balance, whereas the 2 corresponding prices are the upper and lower border.

The determination of an equilibrium depends on your preferred trading cycle — accordingly, there is no fixed size of the equilibriums. As already mentioned, the flexible handling of time allows you to adjust the intervals and combine data according to your preferences. As a result, you can identify different Balance Points and as a consequence different equilibriums with different interval settings and data combinations. J-Chart offers the possibility to identify balances for both short-term and long-term traders (day traders and position traders).

Kinetic Equilibriums of different sizes

The figure above shows that markets are moving from one equilibrium to another as well as that there is no fixed size of equilibriums. We can identify short-term, mid-term and long-term equilibriums each with a different Balance Point (BP S1, BP S2, BP M, BP L).

More precisely, we are looking for Perfect (Ideal) Equilibriums (of different sizes) as well as saturated and unsaturated price areas. The second way of determining entry and exit points relies on our second principle "Market participation, when the market is undergoing the process of breaking equilibrium". In this situation, we are trading "with the market" as either the upper or lower boundary is broken and the actual balance destroyed. The market will continue to move either upwards or downwards towards a new equilibrium. The normal process of the change between equilibrium and chaos consists of the following 3 interrelated steps:

Step one is market's creation of a perfect equilibrium (one Balance Point with 2 corresponding prices (edges) which are both reached).
Step two is the saturation of the actual equilibrium (movement between the 2 edges of the equilibrium in order to achieve a symmetric saturation of price frequency).
Finally, after the perfect equilibrium is formed (saturated or unsaturated), price will break in either direction and move towards the creation of a new balance which depends on buying and selling pressure.

The principle of "Breaking Equilibrium"

The figure above shows the principle of "Breaking Equilibrium". The High and Balance Point A result in the Image (Target) Point B which constitute a kinetic (perfect) equilibrium (blue triangle). The yellow lines mark the upper and lower border of the actual balance.
The next interval shows that the lower border B and at the same time a perfect equilibrium is being reached. Furthermore, the lower part and later on the upper part of the current triangle is being saturated. At the same time a new Balance Point D arises which is higher than the previous BP A. Using the low and BP D we can identify Image Point E (new target).
In period 3 the upper edge of the actual equilibrium High of period 1-A-B is being broken (F) and price starts to move towards a higher equilibrium.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.