Volume Profile Trading: The Cornerstone of a Solid Trade plan.
Volume profile, the closest to a holy grail the market will give you.
Welcome everyone, this will be the first of many trading lessons we will release on volume profile trading. In this lesson we will cover some key concepts and typical trade examples that you can use in your day to day trading.
Before we get started with the more advanced side of Volume Profile let’s cover the basics. What is Volume Profile? Volume Profile is another way to view volume, typical volume is read on a time axis, but VP (I am going to abbreviate Volume profile as VP moving forward) puts volume on a price axis. An easy way to remember it is regular volume is vertical, VP is horizontal.
VP looks at how much volume is traded on each price point, these price points can be changed by the trader. You can look at volume per tick, per point, or whatever way you wish. VP will show you a “profile” of this volume by laying out horizontal bars that visualize how much volume has traded at that price level. So for example if 1000 contracts traded at the $500 level it would show that in the profile, it does not matter if 500 of those contracts were traded at 930am and 500 contracts were traded at 4pm, all that matters is the volume and price it traded at, time is irrelevant.
As this VP develops it will typically fall into a few shapes. The most common shapes are “D” “b” “P” “B” and a trend profile also known as a thin profile (a thin profile is one that doesn’t fall into any other shape because it has many smaller nodes and long periods of low volume nodes).
Let’s cover a few more terms before we get into the trade examples;
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