Balrog really sucks to deal with, especially online. He has huge damage, strong normals, big combos, and a disgusting cheap game. Your best bet is strictly controlling distance and not letting him close to start his deadly shenanigans.
From close or medium range, Balrog will throw out a Low Rush Punch or a Rush Uppercut into grab. It’s nearly impossible to react right to this, so avoid the situation entirely. Poke him out of rushes with on reaction with C.MP, or put out early C.HP / C.HK slide to catch him. Whenever you knock him down, pressure with a jump in or an early Roll. His headbutt reversal has a very slow startup time, so you can recover and throw him pretty consistently.
Close range sucks. His crouching normals have high priority over your pokes and do way more damage, so it’s never in your favor to mix it up with him. Instead, back up and poke with your heavy attacks outside his range, so you’ll catch his limbs or his rushes.
Worst of all, he can convert any blocked or whiffed attack into his insanely long range grab, and follow that up by walking under you for a left-right mixup as you land, into a combo or another tick grab. Assuming you’re not crossed up, you can’t even Scarlet Terror since the tick hit is meaty and recovers in time to block and punish you. You’re better off 3P or 3K backflipping away from him, even if you take a hit on the way out, it’s better than being stuck in a loop. Just mix up your escape because if you use the same one, he’ll follow you and grab anyways.
At far range, you can FBA off his wall to cancel his left-right charge, then go in behind him for a grab. If he headbutts, you’ll safely be back to long range neutral and can try again. None if his jumping normals have a very high hitbox, so come in high with your claw out early if he likes jump reacting to your FBA. In addition to your normal pokes, Jab Roll is also good at far range at hitting him out of rushes and turn punch.
Your key plan is to oppress the space in front of Balrog. You have to do this inside the danger zone, because at full screen, he can do short rushes safely to gain distance – it’s incredibly hard to react to which version of the rush he’s doing and counter it. Instead, work at halfscreen, where all 3 versions of rush punches will equally be stopped by your best normals.
At about half screen, throw out a screen of S.HP, C.HP, Slide, and Jab Roll, covering the range just outside his crouching MK/MP. You’ll hit him out of all his rushes, antiair him with C.HP or at worst push him back with C.MP as he lands, and you recover in time to react to his headbutt by throwing him and jumping back to reset the distance. All his scary options go away if he can’t get in to use them.
- Avoid Sky High Claw, he can always rush punch after, even if it hits.
- Neutral jumping from midrange can be very effective, you’ll land him as he comes in and can combo. Don’t do it too much though, since a Rush Uppercut will hit you.