How Balance Compare Works: Compression, Structure, and Tradable Breakouts

A chart can be right and a trade can still be wrong.

The underlying can move in the expected direction and your option can go nowhere. Liquidity can thin out. Spreads can widen. Implied volatility can collapse. You can be "right" on price and still fail to monetise the position.

Balance Compare is built around that reality. The model is simple: price defines structure, structure defines levels, and option prices decide whether the setup is tradable.

Everything in Balance Compare starts with price. There are no narratives, no discretionary overrides, and no hidden inputs. Indicators are not "extra signals." They are ways of organising price so the system can define boundaries, targets, and failure points without interpretation.

The system does not trade every market. It trades only when the regime is clear. Trend permission is defined by EMA structure: bullish conditions exist when EMA20 exceeds EMA50, which in turn exceeds EMA100. Bearish conditions are the inverse, with EMA20 below EMA50, which sits below EMA100. Flat or rotational markets are ignored entirely.

Trend does not trigger entry. Trend determines whether entries are allowed at all, and in which direction.

Most of the time, markets compress. They churn inside boundaries. They spend energy without making progress. Balance Compare treats that compression as the starting point.

The model defines containment bands called zones. When price stays inside a zone, it is compressing within measurable limits. When price pushes from one zone into the next, compression breaks and expansion begins. Those zones are not abstract. They are the execution framework.

The zones used by the model are Fibonacci zones computed from the full swing range in the data set, calculated from swing low to swing high. The current price is normalised into that swing and mapped into one of four containment regions: the first spans from 0.000 to 0.236, the second from 0.236 to 0.500, the third from 0.500 to 0.786, and the fourth from 0.786 to 1.000.

Each zone has three useful numbers: the low boundary, the high boundary, and the midpoint of the zone. These are not used to predict where price will go. They are used to define where price is contained and what it would mean for price to progress through structure.

Strategy selection comes from EMA structure first, then price location relative to the current zone. Only one strategy can be chosen at a time.

Breakout is used when the next trend leg is expected to begin. The trigger is defined using the next zone in the trend direction, allowing the system to capture moves as price transitions from one structural band to the next.

Trend continuation is used when the trend is intact and the market is progressing through structure. The trigger is more conservative, typically using EMA20 as a reference, but targets remain structural and are defined by the zones themselves.

If the EMA regime is not valid, strategy selection returns null. No trade is considered.

Once a strategy is selected, Fibonacci zones provide the execution geometry. The trigger is the boundary of the next Fibonacci zone in the trend direction, representing entry into the next containment band. This level indicates that price has transitioned through structure and compression is beginning to break.

The target is the midpoint of that next zone. The first objective is structural progress, not optimistic projection. By aiming for the zone midpoint, the system captures meaningful movement without requiring price to complete the entire structural leg.

The invalidation level represents a structural failure back through the current zone boundary against the trend direction. Invalidation is not emotional or discretionary; it is defined by the same zones that defined the setup in the first place. If price violates this level, the structural premise of the trade is no longer intact.

This is where compression matters. Real moves travel through structure cleanly. False moves stall inside structure and fail to maintain directional progress.

This is the layer most technical systems do not have. A chart setup is not enough. A breakout existing on the underlying is not enough. An options trade only exists if the option can be sold later for more than you paid. That is not philosophy. That is how markets clear.

Balance Compare uses option prices to decide whether the setup is tradable. After a valid setup exists—defined by direction, trigger, and spot price—the engine pulls near-ATM options with approximately two-month expiry, enforcing a minimum days-to-expiration threshold. It uses this premium as the reference cost, then computes a premium ratio by dividing the premium by the expected upside to the trigger.

This ratio is the system's tradability proxy. It is not saying "price will move." It is asking: if price moves, is there enough room for the option to reprice in your favour after spreads, implied volatility dynamics, and execution friction?

That produces four states. Waiting status occurs when the premium ratio is below 0.25, meaning convexity is cheap relative to the defined upside. The setup is tradable, but the move may never show up in the option. You are early, and you accept that early often means no payout.

Active Early status applies when the premium ratio is between 0.25 and 0.50. Convexity is no longer a bargain, but the trade can still work economically. The option can still reprice if expansion begins, and participation remains viable.

Active status covers the range from 0.50 to 0.75. The underlying may still complete the leg, but the option is demanding more for participation. You can be right on direction and still fail to monetise the option if implied volatility compresses or liquidity deteriorates.

Active Late status is assigned when the premium ratio reaches or exceeds 0.75. The option is priced such that the remaining move is unlikely to compensate for the cost. The chart can still be "right," but the trade is not.

This is the point of the status engine: it forces the system to trade only what can be monetised, not what can be narrated.

Entries are governed by status. The system enters on Waiting status at normal size, recognising that the setup offers the most favourable risk-reward profile even though it may require patience. Entry on Active Early status is permitted at reduced size, acknowledging that the opportunity remains economically viable but less attractive than Waiting. Entry on Active status is limited to smallest size or marginal initiation, reflecting the diminished payoff potential relative to cost. Active Late status is skipped entirely.

The system is not trying to be clever. It is trying to avoid paying peak prices for convexity.

Exits are mechanical. A fast-failure exit is triggered if price reaches the invalidation level moving in the opposite direction to the forecast. This is how false trades are cut before they reduce capital substantially.

A time-based exit is applied when the option approaches expiration without the trade developing as expected. This removes positions that have failed to produce expansion or that have been eroded by time decay.

A profit exit occurs if price reaches the structural target. The position is closed when the leg completes, taking the payoff at the point of structural fulfilment rather than allowing it to become a different trade.

There is no "manage it later." The entire point is to remove improvisation from the outcome. Most trades will end in an exit designed to limit downside and capture structural completion when it occurs.

Options are used because they cap downside and concentrate upside. The mapping from underlying price movement to option profit and loss is imperfect, which is exactly why the model requires the status engine. The goal is not to pretend options behave like spot. The goal is to participate only when the payoff geometry justifies the uncertainty.

When the model is right and the market reprices the option, options deliver the asymmetric outcome the strategy is built for.

EMAs decide whether trading is permitted and in which direction. Fibonacci zones define compression structure and execution geometry. Options prices decide whether the setup is tradable in reality, not just on a chart.

Balance Compare is not a forecasting engine. It is a filtering engine. It trades the moves that can be monetised and ignores the ones that cannot.