How can Volume Profile Trading strategy maximize your profits?

If you are an intra-day trader, you can benefit from this Volume Profile trading strategy. Watch our latest video and learn how to trade with Volume Profile

Volume Profile trading strategy – what happens with a timeframe?

Hello and welcome to this video from Diary of a Trader. Today, we’re going to be going over Volume at Price Analysis, or some people like to call it, The Volume Profile. Now, Volume and Price Analysis differs from regular volume, because instead of looking at the volume down here, where it’s telling us how much of something was traded over a period of time and then it usually shades it red or green, to say there were more buyers or sellers, so where I’m looking at now, there were 1631 contracts, or stocks, or coins, or units of currency, that were traded over this hour, and that most of the volume was from people selling. So, that gives us a good idea of what is happening with a timeframe, but it doesn’t tell us what is happening with price, and this is one of the hidden gems and kind of greatest advantages for intra-day trading or day trading. And, sometimes, you can find this for free on some software, but, at least in TradingView, this is a paid software or a paid version of the Volume Profile. we’re going to go to the Session Volume. So, the Session Volume only brings up what is… The Volume Profile appears for just the day that it’s happening. So, the open of Cryptocurrencies on TradingView, as that closes and opens at 7:00 p.m. Central Standard Time. And so, this is the Volume Profile. But I like to get rid of the histogram a little bit, and then create larger value areas, rows rather, and then I like to decrease the value area just a little bit. And then, what we see here is the Volume Profile for each session. And if you can see that, essentially what we have is, we have a horizontal representation of volume versus a vertical. So where vertical volume tells us what has happened and how much has been traded during a certain set of time, this is telling us how much of something has traded at a particular price. And if we were to even zoom in a bit here, and we were to apply the values, very hard to see right now, but we can see that the, for instance, right here, this says that we had 38 at this price level of about 8258 in Bitcoin, there were 38 Bitcoin bought versus 56 sold.

And so, what this does, the Volume Profile, it tells us where most of the activity happens and this red line tells us where our point of control, they call this the VPOC or POC. The point of control is where the most of the volume at a price has been traded. So, price has spent most of the time, trading at this 8232 value area. And what the point of control tells us, is that if prices are trading below the point of control, we are in a bearish and a weak condition, and if we are trading above, we are in a bullish and a strong condition. And you’ll see that, as this forms, as this point of control forms, we can get into conditions where it acts as a natural support and resistance there. So as the price was trading here, fell down, came back up to visit it, this formed a resistance area and it broke down away. That became a lot of selling pressure. Additionally, when we came down to the current price range, we are trading with a point of control down here, 7900, we are trading below that, and we have not reached back up to it, so we are considered to be in a weak and bearish cycle here. But we can look back and see over time, a thing to notice on your charts, is looking at how the point of controls are forming. Are they ascending? Are they descending? And is the gap between them expanding? That can tell us a lot. What we really like to see and identify, are these high volume and low volume nodes. So, a big peak in volume right here, this is called a High Volume Node, And then areas where there’s not a lot of activity, those are called Low Volume Nodes or I like to call them, Volume Deserts. And so, the behavior of these zones is that when price approaches a low volume area, a price area that has not had a lot of volume, it moves through it really fast. And you may not be able to see this so much on this type of chart volume, but we could look at a different way.

So this is great for Intra-day trading and looking at how the price action has been over the last few days to trade, but sometimes we need a broader view so we can do a fixed range. And for fixed range let’s say we want to… Well, let’s go to a daily chart. And then, let’s find the beginning of the month. So, let’s look for, here we are. We’ll start on May, 1st, and we’ll do a fixed range. So, on May 1st, and that will go all the way to where we are now. Now, here’s our Volume Profile for the current month of May, in 2018. And I’m going to do the same thing, where I like to get a few more bars, lower that volume area, and get rid of the shaded background because this is all I really need. So, for the entire month of May, this is what we’ve got so far in the price action. We see that the point of control is down here, is at the 8300 value area, and that we are trading below that line. The point of control, while it acts as kind of a natural support and resistance zone, it also acts as a natural point to return to. So, think of price being attached to the point of control like a rubber band. The further it pulls away, the more it wants to snap back up to it. And, we have a high degree of probability that when price comes from a higher low, and it retraces all the way to the point of control, and then goes above it or below it, whatever the direction it is, we have a high chance of retracing the entire move above here. So, in this scenario, if we were to trade all the way back above to this point of control on this chart here, we have a high probability of actually trading higher and above this.

The point of control is also very, very useful to use with natural areas of support and resistance, or zones of control based off of pivots, if you remember watching a video we did recently together over pivots. We do pivots point standard, if we take a look here, this pivot was at 8400, which is right within the value range of our point of control. So, that is telling us that we have a very strong area of support and resistance, so if price were to return to this area, it would have a very difficult time getting there.

Now, we should also look at the prior month’s trading period because that is also going to give us an idea of, well, if price is falling down below this point of control, where could it go? And so, we’re going to get the fixed range. So, we’re going to go to April 1st, and we’re going to trade that entire range here, and do the same thing we did for the others. And what do we see here? We see that the point of control, in April, was down here, where we spent the majority of the time trading down at the 6800 value area. Now, what is interesting to take a look at is… So we’re basically looking at a monthly Volume Profile, and we see that price traded pretty rapidly above through this area. You see where we have this lot of volume here acting as a support zone as we moved up? It was easier to move up because there was not a lot of volume traded in here. And then, we start to form another kind of base we saw, a High Volume Node form, and that was very easy to trade through it. And so, the past Volume Profiles can tell us a lot. And if we really want to get a broad view, this is kind of a more a dynamic style of view. We can look at it through the visible range, which will just tell us everything on the chart that is currently visible, it will form that Volume Profile.

Sometimes this is a little easier to see the kind of a larger picture view. We’ll go to 50 rows actually, probably on this one, 100 rows, same volume area. And if we want to go just from the all-time high here, we just trade our screen over until we are about right there. And so, this is the Volume Profile of the all-time high set on December 15th to now. And so, what we’re looking at is, we’re actually trading just slightly below the most traded volume area, and we’re right below the point of control, which is 8178. So, that is the point of control on this large swing, from this swing high to where we currently are. This is telling us that we are slightly below the point of control and so, that is a bearish condition, so we should observe over the next few days and watch to see what price does at these levels, because the behavior and the theory behind this says that this is a High Volume Node we’re in, and we’re technically trading below it, so price has a much easier time moving down, than it does, moving up. If we ever saw price trading back up to 9356 or that 9300 zone, if we look above us, all of this price activity, very, very, very open. Not a lot there. If we even want to scroll out and go all the way to, let’s go to the beginning of 2017, and this is our Volume Profile for 2017 to now. So, we can see that the Volume Profile is actually telling us the point of control is way down here at 1185, And that we’re kind of in the middle of a big trading zone right here.

So, this is a pretty interesting way to look at it. If we go to our weekly, we can see the whole price history and we can see that over the entire price history of Bitcoin’s chart on TradingView, the point of control is down at $212, which seems like a kind of a silly value, but it’s really not in the long run, it’s just telling us where most of the participation has happened. And again, if we were to go from a recent swing low to that all-time swing high, and we look at where we’re at, we’re still sitting right below that Volume point of control  zone of 8100, or at 8280, and that is what price is trading at currently, and if we see below us that the volume profile starts to decline the lower we go. So, it is going to be much easier for price to move lower than it is to move higher. That was just a little intro, and look at Volume Profile and how it can be used in your trading. I hope you found this video very informative and useful and look forward to talking with you in our next videos. Bye-bye.

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