The hAnDbOOk Of TeChnICAl AnAlysIsMarkets do not trend all the time. Once prices start to find agreement with
value, market participants will have potentially less cause or reason to initiate
any further activity until either new information enters the market or a bullish
or bearish technical signal invites further participatory activity. It is during the
period of balance between price and value that price starts to form a distribution
as it oscillates and fluctuates around the new area of balance. This distribution
of prices tends to form a bell‐curve‐like appearance, with the greatest agreement
between price and value being found around the fairest price, as perceived by the
majority of the market participants. Prices will rise and fall within this area of
general agreement, trading back to the fairest price should prices appear unfairly
high or low. See Figure 17.1.
This distribution, resulting from the behavioral responses of market partici-
pants, is not unlike those obtained from the sampling of other empirical data. For
example, if we sampled the IQ of one thousand students, we would find that most
of the IQs would fall around an average value, with fewer IQs lying at the upper
and lower ends of the scale. We would also obtain the same bell‐shaped distribu-
tion if we sampled the heights, weights, or the number coins that each student
had in their pocket. If we plotted the distribution of IQs, it would look something
similar to the plot seen in Figure 17.2.
Hence we see most IQ test scores gathering around a central value, normally
represented by the mode, which in many cases is typically close to the average IQ
value. This distribution may also be illustrated by turning it 90‐degrees clockwise,
as seen in Figure 17.3.
In the same manner, we may also represent price as a function of its activity
at each price level, that is, the number of times it revisited a particular price level
figure 17.1 Area of Balance Between Price and Value.