The MOST POWERFUL Day Trading Indicator
Summary
TLDRThis video script delves into the world of volume profile analysis, a powerful trading tool that reveals market participant activity and aids in identifying key support and resistance levels. The presenter shares insights on various volume profile indicators, such as candlestick volume profiles, session profiles, and TPO indicators, and explains how to interpret different profile distributions to detect bullish, bearish, or neutral market biases. The script also highlights the importance of using volume profiles in pre-trade analysis and position management, offering strategies like value area retracement and rollover setups for improved trading outcomes. The presenter's transition from a level two trader to a technical order flow trader underscores the evolving nature of market analysis and the necessity of adapting to algorithmic trading influences.
Takeaways
- 📈 Volume profiles are a crucial tool in orderflow trading, providing insights into market participant activity.
- 🔄 The point of control (PAC) is the price level with the most volume traded during a session, indicating potential support or resistance.
- 📊 High volume nodes act as areas of attraction for price, while low volume nodes represent areas where the market moves quickly due to low liquidity.
- 📝 Fair value, traditionally set at 70% of total trading volume, is the price area where most trade occurs, but a 40% setting can be more useful for new traders.
- 📉 Understanding the distribution of a volume profile helps determine bullish, bearish, or neutral market bias.
- 📌 Stacked value areas can become significant levels of support or resistance, worth noting on charts.
- 🔄 Topheavy and bottom heavy distributions can signal potential reversal opportunities when additional context is applied.
- 📉 Value area retracement is a setup where a price retraces to previous session's value area, potentially acting as support or resistance.
- 🔄 Value area rollover is a setup where price rallies or sells off in the first half of a session and then reverses, aiming for an earlier entry with potentially high R multiples.
- 📋 Timeframe recommendations for volume profiles include 1-hour profiles and 8-hour overnight profiles for intraday and premarket analysis.
- 📈 For new traders, starting with longer time frames is advised to build skills before moving to shorter timeframes.
Q & A
What is a volume profile and why is it important in trading?
-A volume profile is a tool that displays the amount of volume traded for every price increment over a user-defined session. It's important in trading because it provides an inside look at participant activity, helping traders identify critical support and resistance levels, areas of low liquidity, and powerful trading setups.
What are the three primary volume profile indicators mentioned in the script?
-The three primary volume profile indicators are Candlestick volume profile, session profile, and TPO (Time Price Opportunity) indicator.
What is the point of control (PAC) in a volume profile?
-The point of control (PAC) is the price level where the most volume is traded for the session, indicating a potential area of high interest for future price movements.
How do high volume nodes and low volume nodes affect price movement?
-High volume nodes act like gravity, attracting price and trying to hold it, while low volume nodes have low gravity, allowing the market to move quickly through these zones due to low liquidity.
What is fair value in the context of volume profiles?
-Fair value is the price area that facilitates the most trade between market participants, where buyer and seller aggression is balanced, resulting in price trading in a tight range on higher volume.
Why might a trader choose to use a 40% fair value setting instead of the traditional 70%?
-A trader might choose a 40% fair value setting because it provides a smaller range, making it easier to analyze distributions and identify potential trading opportunities, especially for new traders.
What is a value area rollover and how does it work?
-A value area rollover is a trading setup where the trader looks for price to rally or sell off in the first half of the session, forming value in the second half, and then looks for a reversal trigger, hoping that the profile rolls over to the opposite side.
What are topheavy and bottom heavy distributions, and what do they signify?
-Topheavy and bottom heavy distributions are volume profiles that form when price rallies through a low liquidity zone at the start of a session and closes near its highs (topheavy) or sells off and closes near its lows (bottom heavy). They can signal potential reversal opportunities when additional context is applied.
How can volume profiles be used for trade management?
-Volume profiles can be used for trade management by noting high and low volume nodes on different time frames, which can help traders decide when to hold positions longer or when to take profits.
What are some time frame recommendations for using volume profiles?
-The script suggests using 1-hour profiles and the 8-hour overnight profile for intraday trading. Daily and weekly charts are also recommended for analyzing larger time frames and managing trades.
Why is it important for new traders to start with longer time frames when using volume profiles?
-New traders should start with longer time frames because their contact skills may not be strong enough to trade on very short time frames. As they build their skills, they can gradually move to shorter time frames.
Outlines
📈 Introduction to Volume Profiles
The script introduces volume profiles as a powerful trading tool, explaining the concept of a 'value area rollover' and its high probability for trading success. It emphasizes the importance of volume profiles in understanding market participant activity, which can lead to profitable trading setups. The speaker shares their transition from a level two trader to a technical order flow trader, focusing on volume analysis as a way to adapt to the changing market dynamics influenced by algorithms.
📊 Understanding Volume Profile Components
This paragraph delves into the components of a volume profile, including the point of control (PAC), high volume nodes, low volume nodes, and the traditional fair value concept. It discusses how these elements can be used to analyze market behavior and identify potential trading opportunities. The speaker also introduces different types of volume profiles like candlestick volume profiles, session profiles, and TPO indicators, and shares their preference for using a 40% fair value setting for easier analysis.
📉 Analyzing Profile Distributions
The speaker explains how to read and interpret volume profile distributions to determine bullish, bearish, or neutral market biases. It uses examples to illustrate how market events can cause price movements away from fair value and how these movements can be analyzed to form trading hypotheses. The paragraph also introduces the concepts of topheavy and bottom heavy distributions as potential reversal opportunities, emphasizing the need for additional context to confirm these signals.
🚀 Applying Volume Profiles in Trading
This section provides practical examples of how to apply volume profiles in trading, focusing on setups like value area retracement and rollover. It highlights the importance of patience and waiting for the right market turn to start a trade. The speaker also offers time frame recommendations for using volume profiles effectively and shares personal preferences for different trading styles. The paragraph concludes with an encouragement to practice using volume profiles and a reminder to subscribe for more trading training content.
Mindmap
Keywords
💡Volume Profile
💡Value Area
💡High Volume Nodes
💡Low Volume Nodes
💡Fair Value
💡Orderflow Trading
💡Retracement
💡Rollover
💡Time Price Opportunity (TPO)
💡Topheavy and Bottom Heavy Distributions
Highlights
Volume profiles are a powerful tool for identifying high probability trading setups.
Volume profiles provide an inside look at participant activity, useful for any trading style or strategy.
The point of control (PAC) is the price level where the most volume is traded during a session.
High volume nodes act like gravity, attracting price and holding it, while low volume nodes allow for quick price movement.
Fair value is the price area where 70% of total trading volume occurs, but a 40% setting is recommended for easier analysis.
Volume profiles help in determining if price action indicates a bullish, bearish, or neutral bias.
Market events can cause imbalances, driving price away from fair value until a new equilibrium is found.
Volume profiles can be used to identify critical support and resistance levels, as well as areas of low liquidity.
Topheavy and bottom heavy distributions can signal potential reversal opportunities with additional context.
Value area rollover is a setup where price rallies or sells off in the first half of the session, and a reversal is expected in the second half.
For intraday trading, 1-hour profiles and 8-hour overnight profiles are recommended for context building.
Longer time frame profiles should be used relative to the entry chart to define opportunity zones.
Stacked value areas can become important levels for trade management.
When trading strong trends, wait for the turn to start and look for retracements rather than reversals.
For new traders, it's advised to start with longer time frames to build contact skills.
Volume profiles can be used in pre-trade analysis and for managing positions more effectively.
The TPO (Time Price Opportunity) indicator displays multiple profiles for different time periods on the chart.
The course encourages traders to use volume profiles to improve their day trading and develop their own trading playbook.
Transcripts
this is a volume profile and this is an
extremely powerful setup using volume
profiles that I call a value area
rollover and this is another high
probability setup that you're going to
learn today called the value area
retracement for a lot of you this is
going to drastically improve your day
trading volume profiles are the core
Foundation of orderflow trading I
believe it's the most important
indicator a day trader can learn it's
even extremely powerful for long-term
investing it will improve any trading
style or strategy by providing an inside
look at participant activity which
allows you to determine the best trading
setups that can result in huge R
multiples when I began my first trading
job 20 years ago every Trader at the
firm I worked for was purely a level two
Trader we used a level two to identify
areas of high liquidity which act as
support or resistance and to spot areas
of low liquidity where prices were
likely to move through with ease
roughly a decade into my career
algorithms began accounting for more
than 50% of daily trading volume they
are constantly adding and pulling
liquidity from the book as a result the
transparency of a level two was greatly
diminished I was at a transitional point
in my career similar to what the Floor
Traders faced as a markets began to
First go electronic I spent almost two
years making the transition from purely
a level two Trader to more of a
technical order flow Trader my entire
Focus that time was on volume analysis
my goal was to redefine my approach to
the markets with tools that will
continue to work into the future
regardless of algorithms unlike a level
two volume cannot be manipulated by
algorithms due to the fact the trade
must be executed in order to affect it
today you will learn how to use volume
profiles to identify critical support
and resistance levels areas of low
liquidity the strength of a trend and
some very powerful contextual setups
that you can begin implementing into
your strategies later in the course you
will also learn how to use them in your
pre-trade R analysis and to manage your
positions more effectively different
charting platforms use different names
for volume profiles such as volume
imprint number bars volume metrics or
just simply volume profiles there are
three primary volume profile indicators
first we have the Candlestick volume
profile which displays a profile for
every single Candlestick as seen here
your charting platform may also will
display them like this where the
Candlestick is to the left of the volume
profile next is the session profile
which you may already be familiar with
the session profile will represent the
entire day for the security that you're
analyzing some charting software may
also give you the option to construct a
profile based on just the visible bars
on your chart as seen here finally
there's a TPO indicator which stands for
time price opportunity it displays
multiple profiles on your chart for
whatever time period you wish to analyze
such as every 15 minutes 30 minutes
hourly and so on we will go more in
depth on these shortly but first let's
break down the basic components of a
volume profile a volume profile simply
displays the amount of volume traded for
every price increment over a userdefined
session the point of control also known
as the PAC is the price level where the
most volume traded for the session next
we have high volume nodes which is
simply an area of high volume relative
to surrounding price action third we
have low volume notes which as a name
implies is an area of low volume
relative to surrounding price action
high volume nodes act like gravity they
tend to attract price and try to hold it
there conversely low volume nodes are
areas with low gravity the market often
moves quickly through these zones due to
the low liquidity fourth we have the
Open high low and close just like any
other traditional Candlestick how they
will be Illustrated varies platform by
platform again typically you're going to
see it overlaid on a Candlestick or to
the left of the volume profile as seen
here finally we have fair value you may
recall from the auction Market Theory
lesson in the last module that
traditionally technical analysts Define
fair value as the range of prices where
70% of the total trading volume occurred
which is usually the standard setting on
charting
platforms a normal distribution also
called a bell curve is simply a
symmetrical probability distribution in
statistics it represents a graph where
the data clusters around the meat with
the highest frequency in the center and
decreases gradually towards the Tails
70% has been used for fair value as it's
close to one standard deviation from the
mean which statistically represents
68.26 of all data ultimately fair value
is the price area that facilitates the
most trade between Market participants
buyer and seller aggression is balanced
resulting in price trading in a tight
range on higher volume personally I
never use fair value with my volume
profiles as 70% is such a large range
that I didn't find it very useful in my
strategies I prefer to analyze
distributions without a fair value
overlay however when I was coaching
retail Traders for a few years they were
having a difficult time analyzing
profiles in the same manner that I did
my ability as a result of thousands of
hours of day trading I did some
experimenting and found that using a
fair value setting of 40% made it much
easier for new Traders when analizing
distributions I highly recommend that
you use this setting when applying
volume profiles to any of your charts
it's what I will be using throughout the
remainder of this
course the only time I would recommend
using 70% is if you like to trade with a
session profile especially if you are
trading any type of mean reversion
strategy the key to using volume
profiles is learning how to read their
distributions you will analyze a
profile's distribution to determine if
price actions indicating a bullish
bearish or neutral bias to understand
the logic let's quickly revisit the
flowchart we covered in the AMT lesson a
security trades at fair value when buyer
and seller aggression is balanced
represented by Price trading in a tight
range on higher volume Market events
such as economic News company earnings
and so on will cause either a buy or
sell imbalance to form this imbalance
drives price away from fair value as
price goes into Discovery in search of
new buyers or sellers eventually price
will reach a level that attracts new
buyers or sellers into the market
offsetting the imbalance forming a new
fair
value let's look at some basic
examples here we have a profile
indicating a bullish bias as a result of
a buy imbalance buyers became the
aggressor during the session and price
goes into discuss Y in search of new
sellers closing out to session near
highs as indicated by the Candlestick
when I say buyers became aggressor
what's actually happening is buyers are
taking the offer more aggressively than
sellers are hitting the bid as well as
the bids are filling in faster than the
offers in this next example we have a
bearish bias due to a sell imbalance
sellers eventually became the aggressor
during the session and price went into
Discovery in search of new buyers as
indicated by the Candlestick sellers are
hitting the bid more aggressively than
buyers are taking the offer and the
offers are filling in faster than the
bids finally we have a neutral bias as
seen here buyer and seller aggression
are closely matched and price closes a
session inside fair value you will use
longer time frame profiles relative to
your entry chart to determine areas of
support and resistance it's important as
a day trader to define opportunity zones
where price is likely to reverse or
break out far too often new day Traders
will use Simple Triggers on their own to
get into a trade this leads to trading
setups that should have been avoided due
to potential R values that are not
favorable you will use longer time frame
volume profiles to build the proper
context around your triggers in order to
find Opportunities with better R
multiples resulting in a higher
expectancy here we have a volume profile
that represents yesterday's trading
session while doing your pre-market
analysis what knowledge does yesterday's
profile provide you we know a buy
imbalance occurred here at fair value
because price closed out the day pulling
away from fair value in search of new
sellers thus we know buyers were the
aggressor at these prices you will use
that knowledge and if price retraces
back to these levels in the current
session you will look for long setups as
there's a high probability it will act
as support
I'm sure I will receive some comments
saying Adam how can you be sure the
buyers are still there I can't in
trading we're always dealing with a
limited amount of information we never
have the complete story therefore we
analyze the data that we do have to form
a hypothesis and we make trading
decisions based on that hypothesis here
we have another example illustrating a
profile from the prior days trading
session what hypothesis would you form
in your premarket analysis
price closed below value thus we know
that sellers were the aggressor at fair
value if price retraces back into fair
value you would begin looking for
opportunities to go
short there are two more distributions
that I want to cover prior to getting
into some setups we will be using them
throughout the remainder of the course
and they are extremely powerful they are
topheavy distributions and bottom heavy
distributions I apologize for my lack of
creativity and the names but it's what
I've always used when working with
students they can signal a potential
reversal opportunity when additional
context is applied more on this in a
second I Define a topheavy distribution
as a profile that forms when price
rallies through a low liquidity Zone at
the start of a session notated by a low
volume node and closes out the session
near its Highs at fair value a bottom
heavy distribution is just the opposite
it's a profile that forms when price
sells off through a low liquidity Zone
and at the start of a session and closes
out the session near its lows inside
fair value the logic behind these
potential reversal opportunities is if
the trend was still really strong or
weak the session should have closed
above or below the value area in the
direction of the trend as I mentioned
you will need additional contexts in
order to confirm that these are
potential reversals if the security that
you're trading has been in a really
strong Trend I wouldn't be looking for a
reversal anytime you're ating a strong
Trend I suggest you wait for the turn to
start and look to get in on a
retracement or you're going to get
crushed in really strong Trends let's do
a quick context exercise and then we
will get into different setups here's a
summary of the profile distributions
that we've covered when price closes at
fair value you will have a neutral bias
above fair value a bullish bias and
Below fair value a bearish bias we also
have topheavy and bottom heavy
distributions which can signal
reversal for this exercise we're going
to go through one-hour profiles of the
e- mini NASDAQ 100 I want you to
determine if you would have a neutral
bullish or bearish bias based on the
profile here's the hourly profile that
opens the session for the day would you
be bullish bearish or
neutral if you said bearish you would
have been correct price closes below
value near the lows of the session how
about this this
one once again bearish would have been
correct and how about this
one although the profile closed out
slightly positive we Clos below value so
bearish would have been correct
furthermore notice how the value area
overlaps the prior hours fair value
stack value areas can become very
important levels and are something worth
notating on your charts
next this time we have a bottom heavy
distribution closing out the session
inside value I would have viewed this as
a potential reversal opportunity as you
can see price retested the lows and then
reversed and began to rally at the close
out of this profile would you have been
bullish bearish or
neutral bullish would have been correct
how about this
one
once again bullish as price closes above
value and how about this last
one price rallies through a low
liquidity Zone and closes out in value
near ties this is a topheavy
distribution also forming a double top
signaling another potential reversal
nice work you just built Some solid
context with volume profiles here's the
same chart with value area set to 70%
you can see how it becomes much more
difficult to analyze the distributions
versus a fair value setting of
40% next let's look at some different
contextual setups you will use when you
begin to develop your playbooks later in
the course we will look at all of these
setups on a Candlestick volume profile
as well as using tpos considering we
won't be studying patterns or triggers
until the next module we will simply be
looking for an entry on the break of a
high or low of a
Candlestick in this first example price
is selling off and we have a topheavy
distribution form right here which also
lines up with the prior hours fair
value the region shaded in Gray on our
trigger chart represents the same time
frame as our volume profile on our
context chart you could have played a
break below this candle and place your
stop above the swing and ridden this
trade back to
lows here's another example of a
topheavy distribution at forms in Trend
but this time we're using tpos to
analyze the
distributions ultimately you get the
same story whether you use individual
Candlestick profiles or overlay a TPO
indicator on your charts it comes down
to personal preference I realize a lot
of you are probably on trading view if
that's the case your only option at this
time will be to use their TPO
indicator in this next example we have a
double bottom at the low of the opening
range in a bottom heavy distribution
forms once again you could have looked
for a simple candle break and caught
this
reversal here we have the exact same
setup but using the TPO indicator one
thing I can suggest is that if you use
really short time frames for your
trigger chart roughly 1 minute or less
the TPO indicator may be a better option
for
you this next setup I call a value area
retracement
which we briefly covered earlier when
going over the different distribution
types this is also a good example of
being patient and waiting for the turn
to start the profiles we're looking at
here represent 8 hours each price had
been in a strong uptrend for a few days
and the prior day the market began to
reverse right on the open of the session
we had a retracement into the overnight
value area you could have gone short on
the break of this 5-minute candle and
caught a huge
winner once again here's that exact same
value area retracement using the TPO
indicator if you trade Futures the 8h
hour profile that opens at 1:00 a.m.
eastern and closes out at 9:00 a.m.
eastern 30 minutes before the US Open is
a profile that can provide some amazing
traits it's one of my favorites in my
playbook here we have another value area
retracement on a one hour profile notice
how the market started to turn in the
prior hour if you were patient and
waiting you could have played a great
retracement a much better setup than
looking to play the bottom heavy
distribution seen right here as it was
driving into fresh lows again showing
why you shouldn't be looking to fade
strong Trends until after the turn
starts and here we have the exact same
setup on the TPO profile if you're only
using one monitor you are probably going
to want to try the tpos first but if you
have two monitors I recommend you try
both to discover what you find easier to
analyze
if you're enjoying this course don't
forget to subscribe and like this video
in doing so I promise to continue to
produce training that I'm confident will
help you become a better day trader it's
truly
appreciated next we have a setup that I
call a value area rollover one of my
favorite setups to trade is you can get
some huge R multiples with them due to
the earlier entry with rollovers you
want to see price Rally or sell off in
the first half of the session in this
example we're looking at one hour
profiles so the first 30 minutes in the
second half of the session you want to
see value form and then look for a
reversal trigger in hopes that the
profile rolls over in this example price
sells off for the first 30 minutes and
we have a little consolidation resulting
in value forming at the lows you could
have played a simple candle break once
again and caught this huge
reversal here's that exact same setup
using the TP o
indicator let's take a look at one more
rollover this time to the short
side notice how price ralles up on light
volume and value forms near the highs
furthermore price is now forming a
double top you could have played a
simple break of this candle and caught
the sell
off and once again here's the exact same
setup using a TPO
profile rollovers topheavy and bottom
heavy distributions are very similar
setups the only difference is you're
looking for the reversal to begin before
the session closes out on the profile
that you're
analyzing finally I have a few time
frame recommendations for building
context with volume profiles my personal
favorites are 1hour profiles and the 8h
hour overnight profile for intraday
premarket I always analyze a daily and
weekly chart as well looking for large
high volume nodes and low volume nodes
I'm a very short-term scalper and don't
necessarily look for setups at these
levels but I like to notate the high
volume nodes and low volume nodes on
these time frames as they can be very
beneficial in trade management if I'm in
a position and notice we're breaking
into a low volume node on the daily
chart I will try to hold the position
longer high volume nodes can serve as
great take profits as well we'll dive
deeper into using volume profiles for
trade management later in this course
far too often I see new Traders using
really short time frames when you're new
your contact skills aren't going to be
strong enough to trade on really short
time frames that doesn't mean you won't
eventually but as you're building your
skills start with longer based time
frames we covered a lot of information
in this video if needed don't hesitate
to re-watch it and please feel free to
leave a question in the comments I will
respond to as many as I can with that
said it's time for you to start getting
screen time working with volume profiles
I'll see you in the next video take care
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