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Initial balance breakout: the first hour sets the range.
The first hour of the session sets a range traders call the initial balance. The breakout strategy waits for the first close outside it and trades in that direction, with the stop in the middle. Here are the rules, two real MNQ sessions, and how to fit a stop that wide inside prop firm rules.
What is the initial balance?
The initial balance (IB) is the high and low of the first hour of the trading session. The term comes from Market Profile, the way of reading price and time developed at the Chicago Board of Trade in the 1980s, where the first hour was treated as the session's opening auction: the range the market "agreed on" before the rest of the day.
For index futures such as MNQ and NQ, the first hour usually means the US cash session, 9:30 to 10:30 ET
(8:30 to 9:30 CT), even though the futures trade almost around the clock. That is when volume and
range jump.
What is an initial balance breakout?
An initial balance breakout waits for the first hour to finish, then trades the first move that closes outside it, in the direction of the break. It is a close cousin of the opening range breakout, with a longer range: one hour instead of a few minutes, so fewer signals, later entries and wider stops.
The idea in four lines
- Range: the high and low from
9:30to10:30ET. - Entry: after
10:30, the first bar that closes outside that range, in the direction of the break. - Stop: the middle of the range (some versions use the far side).
- Exit: a multiple of the risk, or a set time of day, whichever comes first.
Each choice changes the strategy. A mid-range stop is half as far away as a far-side stop, so the target sits closer too; a breakout on the close is a different signal from a breakout on the touch. A version that waits for a retest of the broken level is a third strategy: we tested one on our recorded MNQ sessions and its tight stops were chopped up, so it is not the version we teach. We teach the plain breakout as a worked example of the rules; that is not evidence it is profitable.
Why it is hard to trade inside a prop account
The first hour is wide, and its width changes every day. On the two MNQ sessions in the full breakdown it was
172.25 points on one day and 296.25 on the other, so a stop at the middle of the range was
91.25 and 149.5 points from the entry: $182.50 and $299 on one micro
contract. The trade can also take hours to resolve, through the quiet midday, while open profit moves an intraday trailing
floor. Trade a fixed number of contracts and the first hour quietly decides your risk for you.
What is in the full breakdown
- The rule cardExact range, entry, stop, target and time rules, written so you could code them.
- A real session where it workedMNQ, 5 Aug 2026, 1-minute chart, step by step.
- A real session where it failedMNQ, 1 Oct 2026, and the sizing lesson it teaches.
- Prop-rule fitDaily loss limit, trailing drawdown and consistency, worked in numbers.
- A test-it-yourself planHow to backtest and stress-test it before it costs you an evaluation.
The full breakdown · free with your email
Initial balance breakout: rules, real charts, prop-rule fit
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Read the full initial balance breakout breakdown
The rule card, two real MNQ sessions (one target, one stop) and how to size a stop that is half the first hour's range. We also email you the link, so it is one tap away next time.
1. The rule card
Initial balance breakout, 1-minute bars
- Initial balance. Mark the highest high and lowest low from
9:30to10:30ET (8:30to9:30CT): the 1-minute bars from 9:30 through 10:29. - Entry. From the
10:30bar on, the first 1-minute bar that closes above the high (long) or below the low (short). Enter on that close. No new entry after15:30ET. - Stop. The middle of the initial balance: (high + low) ÷ 2. If that falls between ticks, round it to the next
0.25away from your entry. - Target. Two times the risk (entry to stop), measured from the entry.
- One trade a day. After a stop or a target, the strategy is done for the day, whatever price does next.
- Time exit. If neither the stop nor the target is reached, exit at
15:50ET. - Size. Contracts = the money you allow per trade ÷ (stop distance in points × the contract's point value), rounded down. If one contract is already more than you allow, there is no trade.
Rule 7 matters more here than in most breakout strategies, because the stop is half of a full hour's range. The failed example
below is why it is on the card. Point values come from CME Group's contract specs: MNQ is $2 a point, NQ
$20. Our examples use micros.
2. A session where the rules worked
Real chartSelected example, chosen to show the rulesTarget reached
| Step | What the chart shows | Number |
|---|---|---|
| Initial balance | High (9:45) and low (10:23), 9:30–10:30 ET | 30,073.25 / 29,901.00 = 172.25 pts |
| Entry | First 1-minute close outside it: the 10:30 bar, below the low | 29,896.00 |
| Stop | Middle of the range, 29,987.125, rounded up a tick | 29,987.25, 91.25 pts away |
| Target | Entry − 2 × 91.25 | 29,713.50, 182.5 pts away |
| Outcome | Target traded at 11:57 | risk 91.25 × $2 = $182.50, reward 182.5 × $2 = $365 per MNQ |
Read the chart from left to right. The first hour swung across a 172.25-point box and finished near its low. The very first
bar after the hour closed below the box; that close is the entry, and the stop sits at the middle of the box. Price never came
back near the stop (the highest it traded after the entry was 29,914.75, 18.75 points above the entry
and 72.5 below the stop), and the target traded at 11:57, almost an hour and a half later. Dollar figures are per micro contract, before
commissions and slippage. Hypothetical: what the written rules would have done that day, not a trade anyone placed (CFTC Rule
4.41 notice below the next example).
3. A session where the same rules failed
Real chartSelected example, chosen to show the rulesStopped out
| Step | What the chart shows | Number |
|---|---|---|
| Initial balance | High (9:33) and low (10:23), 9:30–10:30 ET | 30,856.25 / 30,560.00 = 296.25 pts |
| Entry | First 1-minute close outside it: 11:08, below the low | 30,558.75 |
| Stop | Middle of the range, 30,708.125, rounded up a tick | 30,708.25, 149.5 pts away |
| Target | Entry − 2 × 149.5 | 30,259.75, 299 pts away |
| Outcome | The break went 27.25 pts further, then price climbed back through the middle; stop traded at 13:19 | 149.5 × $2 = −$299 per MNQ |
Same rules, but the first hour was 296.25 ÷ 172.25 ≈ 1.7 times as wide as on 5 August, and the stop was
149.5 ÷ 91.25 ≈ 1.6 times as far away. A
trader who sized both days the same way at 3 MNQ (which risked 3 × $182.50 = $547.50 on 5 August)
would have risked 3 × $299 = $897 on 1 October: almost all of a $1,000 daily loss limit in one trade
(example limit). Sized from rule 7 with $500 a trade, 1 October allowed $500 ÷ $299 = 1.67, rounded
down to 1 MNQ: a $299 loss, with $701 of the example limit left.
Rule 5 did its job too. Price went on to close above the first-hour high at 13:45, and the card allowed no second attempt. Whether a re-entry would have helped is the kind of question only a test on many sessions answers, which is why the rule is fixed before the open.
Can you tell a 1 October in advance? Market Profile traders often read a very wide first hour as a day whose range may already be mostly set, but we have not tested that as a filter and do not offer one. Test any filter before trusting it.
CFTC Rule 4.41: Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.
4. How it fits prop firm rules
Daily loss limit: size from the stop
Decide how many full stops you want to survive in a day, then divide. Example figures: a $1,000 daily limit and two
stops gives $500 a trade. On 5 August ($182.50 a micro) that is 2 MNQ; on 1 October
($299 a micro) it is 1. With a $300 budget, 5 August is 1 MNQ and 1 October is
no trade at all: one micro already risks more than the budget. On NQ, at $20 a point, the 1 October stop was
$2,990 for a single contract.
Trailing drawdown: a long hold gives open profit time to move the floor
The trade starts at 10:30 or later and can run until 15:50, so it often sits open through the middle of the day. Under an
intraday trailing drawdown the floor follows your highest balance, open trades included. Example figures, not results: at
2 MNQ with a 91.25-point stop, a trade that runs to +150 points open (+$600)
from a new balance high and then reverses to the stop (−$365) lifts the floor $600 and drops the
balance $365, so the room left shrinks by $965, not $365. Check the stop × size against the
room you have after the floor has trailed, not against the account size.
Consistency rule: one target can be a big day
With a 2 × risk target and one trade a day, a target day is twice a stop day. Example figures: at 2 MNQ on
5 August, the target was 2 × $365 = $730. Under a 50% consistency rule, a $730 best day needs total
profit of at least $730 ÷ 0.50 = $1,460 before it fits. Rules and percentages differ by firm; check yours.
Close-out time
The card's 15:50 ET exit is ours. Many firms set their own time by which positions must be flat; if yours is
earlier, it becomes the time exit. Check your firm's current rulebook.
5. Test it yourself before you trade it
- Write the card down exactly. Session times and time zone, bar size, "close outside" (not "touch"), the stop and how it is rounded, the target, the last entry time, the time exit and one trade a day. If two people could code it differently, it is not finished.
- Backtest it on your contract, many sessions. Record each day's first-hour width in points as well as the outcome; half of it is your risk.
- Count the time exits. With a target this far away, some days end with neither level reached. Know how often, and what those days cost or made, before you trust the totals.
- Add costs. Commission both ways and slippage on every fill, more on stops in fast markets. A delayed fill is never better than the backtest price, so model it as a cost.
- Run your size through the rules. Longest losing streak × risk per trade against your daily limit and your trailing drawdown, then forward-test on a simulator for weeks before any paid evaluation.
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Disclosures
Education only. This page explains how a widely known, public strategy is defined and tested. It is not advice, not a recommendation to trade any contract, size or strategy, and not a signal: it shows no setup for any future session. Charts are real past sessions, chosen to show the rules (including a day they failed); they are selected examples, not typical results. The charts are TradingView snapshots (MNQ1!, one-minute, regular trading hours); the range, entry, stop and target marks and labels on them were added by Tarrow Futures. Bars may differ slightly from those on your platform. Trade outcomes on this page are what the written rules would have done on those days, before commissions and slippage. They are not trades Tarrow Futures placed. Dollar figures for sequences and rules are example figures, not results. Prop firm rules differ and change; your firm's current rulebook decides. Futures trading involves substantial risk of loss. Automation does not remove risk.
CFTC Rule 4.41: Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.