This is my go-to system for trading. Been trading this system for 3-4 years. I want to save you $5000-$10000 from fake-trading gurus on youtube like crypto-ernie that sells volume-profile courses. I will only cover 70% of this subject. The other 30% will not be shared publicly. That is my edge and I would like to keep it.
Volume profile plots the amount of volume traded at a price level. If you think in probability and statistics, this is your go-to-indicator. Visualize the Volume Profile in terms of
- Mean = average value –
- Median = middle value
- Mode = the most frequent value
- Range = the difference between the lowest and high value.
Any deviation away from the mean is a opportunity to sell or buy. Markets revolves around value, mean, fairprice. I trade mean reversions, betting that the price eventually returns to the mean or fair-value, average. This is not a law, this is not guaranteed, hence why I say betting as in gambling but the probability is high. Proper risk-management is required to ensure you don’t get rekt. The probability is high around 70%.
Volume Profiles reveal price levels with high levels of interest. The market deems these levels as fair-price, fair value. From a statistics point of view.
- POC (point of control) = Mode (price-range with the highest amount of volume traded)
- Value area = IQR interquartile-range (price-range with the highest amount of volume)
- ValueAreaHigh – ValueAreaLow represent Standard Deviations from the mean (average-price) Basicly it comes down to this concept. Is the asset over or under valued. The amount of volume traded at a certain price can be viewed as a proxy for market interest.
This isn’t a free indicator. You need tradingviewPro and should be combined with price-action concepts, Japanese candlestick reading, Note : We are making educated bets on probability. In trading there is no 100% guarantee with the exception of insider-trading.
VALUE AREA LOW – VALUE AREA HIGH
If price surpasses ValueAreasLow or ValueAreaHigh (StandardDeviation 2.0-3.0 of the bellcurve. Price is either undervalued or overvalued. The market will react by selling or buying.
In rare cases price will keep on rallying beyond VAL or VAH. Beyond VAL is further downside, beyond VAH is further upside in other words a trend is formed. The foundation for a down or up trend is a supply-demand imbalance.
- Uptrend – demand greater than supply
- Downtrend – supply greater than demand
Supply/Demand imbalances cannot form without a auction process also known as consolidation.
Point of control and high volume nodes
The POC (point of control) would the equivalent of mode as in (median, mode, mean, range statistics) This price-level has the highest amount of volume traded at price. This price level is considered fair value, hence why most of of the volume occur at POC and HighVolumeNodes. Think of fair value of a price level with high market interest.
Price always returns to POC after being rejected by ValueAreaLow or ValueArea High. Then bounce off POC or rotates around POC.
HVN’s (HighVolumeNodes) and POC’s (Point of Control) are price levels which the market deems as ”fair value”. When price comes in contact with HVN or POC, price rallies will often halt. In a few very rare occasions price breaks through a POC or HVN caused by massive long-short liquidations.
- POC = point of control
- HVN = high volume node.
Back to the topic of a HVN or POC. When Price comes in contact with a HVN or POC. Any price advance will be temporary halted. You will often see icebergs, hidden orders at these levels. The market deems these levels as fair value. Retail liquidity is fairly active at HVN’s and POC’s.
Expect price congestion, chop, sideways price action around POC and HVN’s in rare occasions whipsaw’s. Price rotates around fair value, market is in equilibrium (balance). Demand is meeting supply, supply is meeting demand, hence why price is congested stuck in a range. Market is in balance, so to speak. Buyers and Sellers both agree on fair value. Market has found a agreeable price.
Lots of passive liquidity in the form of marketstops is collected at POC, HVN both distribution profiles can become hotspots for massive breakouts or break downs if market-stops gets triggered through stophunting.
”can” because not all breakouts are true, they can be false ofcourse. How I can tell whether a breakout is most likely true or false is hidden-in-plane-sight in my articles. Hint : Outer-deviations of the bolllingerbands on incrementally higher timeframes.
- HVN’s and POC’s act like price magnets because these levels shows high levels of market interest. Price has the tendency to return to POC and HVN’s .
- Fair price is also the average price is the price that the market deems as fair value. The expressions Fair value and the average price and static mean are interchangeable. Not to be confused with dynamic mean, which is the moving average. Price often returns to price-levels deemed as fair-value.
- When price comes in contact with a HVN or POC price rallies often come to a halt. HVN’s or POC represent a price level with high levels of market interest. Lots of volume is being traded at these levels. So it makes sense for a rally to come to a halt at price levels with high market interest. Both buyers and sellers deem these price levels as Fair Value. The market is in balance so to speak, imbalances between supply/demand ignite trends.
- On a LowerTimeFrames, HVN’s and POC’s are not formed immediately, this process takes time. A new range starts off platykurtic or mesokurtic then slowly transform into leptokurtic distribution. To make sense of this phenomenon. Correct me if I am wrong. Market revolve around fair value, when a price enters a new range, market consensus on fair value has to be decided. This is the price discovery stage aka Mesokurtic distribution. Lots of volatility… (unfinished auction) Price will rotate between Value Area High and Value Area Low. During the auction process also known as finding market consensus process, the buyers and sellers are looking for ”fair value”. During the auction process, the range slowly contracts, it gets tighter. Buyers/Sellers are front-running each other, competing for the best sell/buy price because the market is double-auction. Buyers and Sellers are ”front-running” each other before consensus fair price is found. When buyers and sellers agree on a price, we call that fair-value. When fair value is found, volatility decreases, price range gets tighter, market is in balance. Apply a bolllinger-band to see this process in action. Hence I am extremely confident in longing and shorting in mesokurtic accumulation-distribution ranges. Mesokurtic distribution is a fancy word for the auction-process, price discovery stage, finding fair value stage, market-consensus on fair value stage. Why is this information so important? During mesokurtic distribution, price will not breakout or breakdown yet. Hence, why you can safely scalp these ranges. A brief window of opportunity to make a few extra bucks. Price will be stuck in the range. Long and short the fake-outs. To do this like a pro, you need to analyze multiple timeframes. I will not get into the exact details, that is my edge.
Kurtosis is great for revealing what type of distribution, you’re gonna get.
Mesokurtic distribution– great for swing trading, price is in discovery mode, high volatility, price doesn’t stay in 1 place but oscillates upside down.
Platykurtic distribution– price levels with no interest from buyers or sellers – liquidity voids. Price levels devoid of any liquidity. Price moves through these levels very fast.
Leptokurtic distribution– distribution or accumulation levels, lots of volume in a tight-range, market is balanced, buyers-sellers agree on price, low volatility, congested price movements. Breakout or breakdown is imminent. Don’t fuck around with OneCancelsTheOther order types, SwingFailurePatterns will fuck you up, they happen so often.
Mesokurtic distribution. Price will not spend alot of time on 1 price level. Market hasn’t found fair value and the market revolves around ”consensus or fair value” both buyers and sellers agree on. Mesokurtic distribution is great because of the high-volatility, minimal congestion. It’s fair to say price is in discovery-mode.
The market will eventually find fair value or consensus. When that happens a Mesokurtic distribution profile will slowly transform into a Leptokurtic distribution profile. Price will spend alot of time in leptokurtic price ranges, the range will be tight, lots of passive-liquidity is being collected in the form of marketstops. When you see a leptokurtic distribution profile – breakdown-breakout is imminent. Depending on the timeframe, higher-timeframes produce bigger breakdowns or breakouts.
LVN – LOW VOLUME NODES
LVN – LowVolumeNodes are price levels devoid of historical volume traded at price. Price either breaks through price levels with high velocity or you see a rejection. In ranging markets, the probability of a rejection of LVN’s is high. Meaning price is likely to bounce from these levels.
When price rallies towards LVN and you are expecting a bounce or rejection from the LVN. Volume should decrease, Momentum should decrease, Switch to a lower-timeframe and observe how the candles are closing, if you are expecting a rejection from the LVN. The candle-bodies should consecutively become smaller.
Around LVN’s is where you would want to scale in or ladder in your limit-buys if you’re trading the range.
Low Volume Nodes – advanced
Reverals at LVN’s are high probability to increase probability.
Check how it was closed (doji, inverted or normal hammer etc) if you have access to footprint charts. then look inside the candle with footprint charts and look for strength with volume delta information.