The MOST POWERFUL Day Trading Indicator

Summary

This 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

00:00

📈 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.

05:00

📊 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.

10:00

📉 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.

15:01

🚀 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.

Keywords

💡Volume Profile

A Volume Profile is a graphical representation of the volume of trades at different price levels over a specific time period. It helps traders identify areas of high and low liquidity, which can act as support or resistance. In the video, the speaker uses Volume Profiles to analyze market participant activity and determine the best trading setups.

💡Value Area

The Value Area, also known as the Point of Control (PAC), is the price level where the most volume is traded during a session. It is a key concept in Volume Profile analysis and is used to gauge market sentiment and potential price reversal points. The speaker emphasizes the importance of the Value Area in understanding market dynamics and making trading decisions.

💡High Volume Nodes

High Volume Nodes are areas on a Volume Profile where a significant amount of trading activity occurs relative to surrounding price levels. These areas can act like 'gravity', attracting price and potentially holding it, indicating strong support or resistance. The speaker uses High Volume Nodes to identify key levels that traders should pay attention to.

💡Low Volume Nodes

Low Volume Nodes are areas on a Volume Profile with relatively low trading activity compared to the surrounding price levels. These zones often represent low liquidity, allowing prices to move quickly through them. The speaker explains that understanding Low Volume Nodes can help traders anticipate price movements.

💡Fair Value

Fair Value is a concept from auction market theory, traditionally defined as the price range where 70% of the total trading volume occurs. It represents a balanced market where buyer and seller aggression is equal, leading to price stability. The speaker, however, prefers to use a 40% setting for Fair Value to make it easier for new traders to analyze distributions.

💡Orderflow Trading

Orderflow Trading is a trading approach that focuses on the analysis of market order flow data to understand market sentiment and potential price movements. It is considered a more advanced form of technical analysis that takes into account the volume and direction of trades. The speaker believes Volume Profiles are the core foundation of Orderflow Trading.

💡Retracement

A retracement in trading is a temporary price movement in the opposite direction of the prevailing trend. It is often seen as an opportunity to enter a trade in the direction of the trend. The speaker discusses using Volume Profiles to identify retracement levels for potential trading setups.

💡Rollover

A Rollover in trading refers to a situation where the market behavior changes direction, often at the end of a trading session. Traders look for signs of a potential rollover to enter trades with the expectation of a reversal. The speaker explains how to identify and trade Rollover setups using Volume Profiles.

💡Time Price Opportunity (TPO)

TPO is an indicator that displays multiple Volume Profiles for different time periods on a single chart, allowing traders to analyze market activity across various timeframes. It helps in identifying potential trading opportunities based on the distribution of volume. The speaker mentions TPO as one of the primary Volume Profile indicators.

💡Topheavy and Bottom Heavy Distributions

Topheavy and Bottom Heavy Distributions are specific patterns on a Volume Profile that may indicate a potential reversal in the market trend. A Topheavy Distribution forms when the market rallies through a low liquidity zone and closes near its highs, while a Bottom Heavy Distribution forms when the market sells off and closes near its lows. These distributions are used to identify potential reversal opportunities.

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