Summary
Highlights
The video introduces Volume Profile as a superior trading indicator compared to traditional technical indicators like RSI or MACD. It emphasizes that Volume Profile shows where the most money has been exchanged in the market, allowing traders to follow 'smart money' and identify key price areas that influence price action. It asserts that volume drives price, positioning Volume Profile as a leading indicator.
The speaker explains how Volume Profile visually represents trading activity at different price levels within a given timeframe. It distinguishes between High Volume Nodes (HVN), which are areas of significant trading activity, and Low Volume Nodes (LVN), where less trading occurred. HVNs suggest price consolidation and balanced trading, while LVNs indicate directional price movement due to one-sided pressure.
The video connects Volume Profile to the statistical concept of normal distribution (Gaussian distribution). It explains that most trading volume concentrates within a 'normal' range (the grey area), representing 68% of the traded volume, defined by one standard deviation. Activity outside this range is considered an anomaly, likely to revert to the mean. This statistical framework informs reversal and range-bound trading strategies.
Two primary trading strategies are introduced: reversal and trend-following. Reversal trading involves buying at cheap prices (below the value area) or selling at premium prices (above the value area) when price moves out of the first standard deviation, anticipating a return to the mean. Trend following involves identifying shifts in the overall volume distribution to higher or lower price ranges, indicating a sustained trend rather than a 'fake out'.
The speaker discusses where to find Volume Profile indicators, highlighting that free versions like TradingView's often use 'tick volume,' which is a less accurate proxy for real trading volume. He advocates for platforms like Deep Charts, which provide actual volume data from exchanges (e.g., CME), offering higher reliability and detail for informed trading decisions. A comparison illustrates the discrepancies between tick-based and real-data volume profiles.
Advanced features within Deep Charts are presented, including the 'Delta Profile' which shows the net buying or selling pressure at each price level (total buying volume minus total selling volume). This provides deeper insights into market aggression. The Volume Weighted Average Price (VWAP) is also discussed as a crucial reference point for institutional traders, representing the average price weighted by volume.
The video explains how to customize Volume Profile settings to focus on specific trading hours, such as 'regular trading hours' (RTH) or 'cash session,' as these are typically where the most significant volume is traded. This refinement helps in identifying more relevant support and resistance levels and breakout opportunities tailored to high-activity periods.
The summary of practical applications includes using Volume Profile to: 1) determine market bias by observing shifts in overall volume distribution; 2) qualify support and resistance areas based on high volume nodes; and 3) act as a trigger for trades by confirming reversals or breakouts with short-term volume activity. Examples, such as identifying absorption and initiative phases within candlestick volume profiles, are provided.
The speaker clarifies that while the Point of Control (POC) is the single level with the highest traded volume, it's more effective to focus on High Volume Nodes (HVNs) – broader distributions of volume. Relying on a single POC level can be misleading due to algorithmic activity, whereas HVNs represent significant areas of interest for institutional players.