Finding Entry- and Exit Points: The 2 Basic Principles of Market Participation

J-Chart treats markets as energetic (thermodynamic) systems, thereby giving us a new way of looking at them. It is designed to help the trader decide when markets are in equilibrium and when they are not. The closer the price action comes to filling a perfect isosceles triangle in a given period (turned on its end), the more it is in (temporary) equilibrium.

By using the 2 data combination functions (PreDays/Combine and CombineBP/Range) provided by J-Chart, you can look at price action in a number of ways.

PreDays/Combine: It is possible to view any number (10, 45, 90, etc.) of days' price action at once, but you also have the option of combining price action over a number of periods to get a clearer picture of what is going on (short-, mid- and long-term). Looking at the market one day at a time gives a different picture than combining 20 or 40 days together.

CombineBP/Range: Alternatively, you can combine price data by looking at the vertical distances of consecutive Balance Points, allowing you to set a specific (maximum) price distance where price data of those intervals will be combined whose Balance Points are within this set price distance.

To a certain extent, the identification of suitable entry- and exit points will depend on the trader's preferred trade duration. Short-term or day traders will generally look at past action one day at a time, and then look at 15- or 30-minute intervals on the trading day. Swing traders will prefer to set the current day interval to 60 or 120 minutes to look for ideal entries and exits, but they'll also combine two to five days together to get a longer-term view.

1. Market participation, when the market is undergoing the process of obtaining equilibrium (for further information also see Achieving Equilibrium),

2. Market participation, when the market is undergoing the process of breaking equilibrium (for further information also see Breaking Equilibrium).

Type 1:

The highest point A, the Balance Point B and the Image Point C result in an unbalanced equilibrium. Before the price breaks above A or below C, there is a high probability that the market price will drop to complete the equilibrium and the symmetric distribution of market prices. If the market price breaks either above A or below C, the actual equilibrium would be broken and destroyed. The market would then move towards a new equilibrium.

Obtaining equilibrium: Type 1

Traders can use this situation by setting Balance Point B as an entry point for a short position and by setting a stop-loss at or slightly above point A.
Why going short at B: Balance Point B represents a resistance level. There is a high probability of price filling the cave between B and C.
Why setting the stop-loss at or slightly above A: The highest point A is the upper border of the actual equilibrium A-B-C. Should A be broken to the upside, the actual balance would be destroyed and there is a high probability that market would move towards a new equilibrium at a higher level.

Using support and resistance: Type 1

Type 2:

The next figure shows two Balance Points (D und E) of two partial triangles. If the actual price is in between this two price levels, the probability is high that the price has to "pave the cave" (fill the gap in between) and form a bigger triangle.

Obtaining equilibrium: Type 2

In this situation traders can sell (short-position) at the level of D (resistance) and buy (long-position) at the level of E (support).

Using support and resistance: Type 2

The highest point A, the Balance Point B and the Image Point C result in an unbalanced equilibrium (see Type 1 above). As already mentioned, the probability is very high that the market price will move lower to complete the unsaturated triangle, if there was a previous balance point as support. However, whether saturated or not, if during the next period the price breaks Point C, the actual balance is destroyed and price has to move lower to form another equilibrium.

Breaking equilibrium

Traders can utilize this situation by setting the lower edge of the actual equilibrium as an entry point for a short position and setting a stop-loss at or slightly above Balance Point B (resistance).
Why going short at C: Image Point C is the lower edge of the actual equilibrium A-B-C. Breaking C (C becomes a Marginal Point)represents the destruction of the actual balance and there is a high probability that market would move towards a new equilibrium at a lower level.
Why setting the stop-loss at or slightly above B: Balance Point B represents the closest resistance level.

Using the principle of "Breaking"

Stop losses are set using major balance points from prior days, past highs or lows, and at the horizontal dark blue lines plotted by the program showing significant support/resistance. Traders are looking for more target points and confirmation that the trend is still positive.