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How I Actually Use Volume Profile (Orderflow + Execution Explained) — Transcript

by Christopher Creamer | Orderflow Trader · 2,940 words · 432 segments · language en · Watch on YouTube

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0:00All right, so today I want to talk about
0:02volume profile and how I actually use it
0:05in my trading. Now, you may see that I
0:07use volume profiles over sessions or
0:10maybe even a fixed range volume profile,
0:13but I'm sure a lot of you guys see if
0:15you're especially watching me trade
0:16every day that I'm looking at volume
0:18profiles inside of every single candle.
0:21Every individual footprint candle on my
0:23chart has its own miniature volume
0:26profile. So, I want to talk about how I
0:29actually use it in my trading because
0:31there really three different ways that I
0:34use volume profile. I use it inside of
0:37every individual candle,
0:39I use it for the session profile for
0:42regular trading hours,
0:44and I use it as a fixed range inside of
0:46an expansion leg or clear structure. But
0:49before we get into that, I do need to
0:52just clear up what a volume profile
0:54actually is. Now, let's take a quick
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1:56firms by using code match. Now, let's
1:58get back into the video. Now, a volume
2:01profile
2:03is a map of participation.
2:06So, it shows you where volume was
2:07transacted at each price level over a
2:10defined period of time. Now, in the
2:12context of auction market theory, it
2:14helps you see where the market accepted
2:18price and where it moved too quickly to
2:21build meaningful agreement, and that is
2:23really the core idea behind volume
2:25profile in general. Now, the market
2:27spends time and volume at prices where
2:30value is accepted and it moves quickly
2:32through prices where there was less
2:34agreement on value. And that distinction
2:37matters because it tells you where the
2:40auction slowed down and where it did
2:42not. And inside my framework, the way
2:45that I use this is volume profile lives
2:48inside location and confirmation layers.
2:51It's helping me validate where price is
2:53located actually has structural meaning.
2:56It's not just a random number on the
2:59chart, it's an area where real business
3:01was done or an area where the market
3:04moved too quickly to really do much
3:06business at all. Now, inside of every
3:09volume profile, you're generally going
3:11to see the same, you know, three or four
3:13things. You have the point of control or
3:16the POC. Now, this is the price or the
3:19price level with the highest traded
3:22volume inside that profile, and it's one
3:25of the strongest references to where
3:28participation concentrated. You also
3:31have value area, so that's where you see
3:33value area high and value area low. Now,
3:36this is the range within a volume
3:38profile where you're roughly going to
3:40see, you know, 70% of volume that was
3:43traded inside of that profile, and that
3:46gives you the accepted range for that
3:49profile or where most of the business
3:50was being conducted. And then you have
3:53high volume nodes and you have low
3:54volume nodes. Now, a high volume node is
3:57an area of prior acceptance. This is
3:59where the market spent time doing
4:01business, and when price returns there,
4:04the market may slow down, it may rotate,
4:07or it might spend time there again. It
4:09is essentially an area of agreement. And
4:12then you have low volume nodes where
4:16this is essentially an area of thin
4:18participation. This is where the market
4:21moved quickly and didn't spend much time
4:23there doing business. And when price
4:25reenters a low volume node, it can
4:28either move through quickly if imbalance
4:30is continuing or it can react sharply if
4:33the move into it fails. The level itself
4:35is information, but it's not a
4:37guarantee. And that's an important
4:40distinction to make because a lot of
4:42traders look at low volume nodes like
4:44they automatically mean continuation,
4:46but that's not how I use them. A low
4:48volume node is a candidate for movement
4:52where what price actually does there
4:54still depends on context and
4:56confirmation. Now, the first way that I
4:59use volume profile is inside every
5:03individual candle, right? Every single
5:05candle on my screen on a footprint chart
5:07as you can see
5:09has a miniature volume profile inside of
5:11it. What this is letting me see is it's
5:14letting me see where volume was
5:15distributed within this single candle.
5:18Now, it may be a 5-minute, may be a
5:2015-minute, sometimes I look at it on the
5:22hourly, but this is the most granular
5:25use of volume profile for me. And it's
5:28actually used majority majority of the
5:30time it's used at the execution level
5:33when it's inside of these 5-minute
5:34candles. Now, I'm not using these
5:36miniature volume profiles as a
5:38standalone signal to take a trade. I'm
5:41using it to refine execution once the
5:44broader setup is already there from the
5:46rest of my framework, right? What I'm
5:48really looking for here
5:50when I'm looking at volume profiles is
5:53I'm looking at effort versus result. If
5:56I see volume trading at a level, like
5:58let's say this candle where my mouse is
6:00right now, but price is not following
6:02through, it's not moving through it,
6:04well, this could potentially be useful
6:06information because it could be
6:08absorption. Now, it tells me that there
6:12is aggressive participation, especially
6:14at the extremes of these candles, but
6:16it's not getting the result that it
6:18should be getting. Now, this doesn't
6:20automatically when you see this mean
6:22that there is a reversal coming, it just
6:24tells me that something is happening
6:26here at this level. And when I see that,
6:29then I watch the reaction. And I may And
6:31it has to be in location and the rest of
6:33everything else has to align, but I'm
6:35watching the reaction that follows it.
6:37And when I identify absorption, I'm
6:40looking for aggressive participation at
6:42the extremes of a candle, like in this
6:44case, with little to no result in that
6:47effort. High participation with little
6:50continuation, whether we stall or we
6:53reject, I mean, it's very different from
6:55just seeing volume and assuming
6:57something is bullish or bearish. And if
6:59the volume is not really there, then I'm
7:01less interested in calling it absorption
7:03because at that point it's more likely
7:06the a lack of participation or
7:09exhaustion rather than true absorption.
7:12So, volume is very important, and that's
7:13why it's in every single one of my
7:15candles. Now, another thing I look at
7:18inside of a footprint candle is low
7:20volume nodes. So, for example, if we
7:22were looking at this candle, we have a
7:24volume profile here. It may be hard to
7:26see because it's blue on black, but here
7:28is a low volume node here,
7:31and here is a low volume node here. If
7:33this is the In the way that I take
7:36trades, it usually requires two candles.
7:39Now, it requires the confirmation candle
7:41and the entry candle. I am looking,
7:43let's just say because I don't want to
7:46go back and like try and find some type
7:48of perfect example or whatever, but
7:50because there's low volume nodes here,
7:52let's just say we're identifying
7:54absorption that's happening, and we are
7:56getting the confirmation that we may be
7:59seeing a potential reversal. Now, after
8:02the confirmation candle closes, I am
8:04looking for the entry candle to
8:07immediately pull back into the
8:09confirmation candle. Immediately, so
8:11open up and immediately pull back. And
8:13I'm looking for it to pull back into
8:15these areas with low volume nodes. Now,
8:17if there are stacked imbalances in this
8:19area, which there aren't in this candle,
8:21but if there are stacked imbalances in
8:22this area, then it's even better. But
8:24I'm using these low volume nodes inside
8:26of the confirmation candles to refine my
8:29entry in my entry candles. But again,
8:32low volume nodes inside of a candle is
8:35not necessarily the signal. It's just
8:37where I can sometimes get cleaner
8:39execution inside of the larger setup
8:41that I'm trying to trade. Now, the
8:43second way that I use volume profiles is
8:46through session volume profiles. And I'm
8:48specifically looking at the regular
8:50trading hours or the RTH session of New
8:52York open when I'm trading Nasdaq. I'm
8:55usually keeping it on the 1-hour chart
8:57and I'm looking at how the day is
8:58building and informing and building
9:00value in real time. I want to know where
9:03value area high is, where value area low
9:06is, and where the POC is sitting. And
9:08I'm looking inside of this profile for
9:10the day to understand where are there
9:13low volume nodes, and where are the
9:16areas where a lot of business was
9:17actually conducted or where are the high
9:19volume nodes sitting within the broader
9:22auction for the day. This is essentially
9:24giving me a bird's-eye view of where the
9:26market is accepting price during the
9:28session. If price is rotating inside of
9:31value, like we were doing here for a
9:33moment, then that tells me that the
9:35market is temporarily balanced. If price
9:38is leaving value and getting accepted
9:40outside of it, that tells me that an
9:42imbalance may be developing, and it's
9:46kind of easier to show you if we're
9:48watching this actually form throughout
9:50the day. Now, as this auction was
9:53actually forming today, well, value area
9:55started up here, but because of we're
9:58watching it kind of after the fact after
9:59it's already done. Well, now after this
10:02large move value area was distributed
10:04and now we have the POC sitting down
10:07here rather than it being up here where
10:08it was earlier in the session. But
10:11again, just because we touch into value
10:14area high or just because we touch into
10:16value area low, it's not a signal or
10:20even just the POC like a bounce off the
10:22POC. I'm not using it as a signal. The
10:25session POC is important because it's a
10:28valid reference to understand where the
10:30most amount of business was actually
10:31conducted during the session, but I'm
10:33not using it as some like guaranteed
10:36magnet, right? In balance conditions,
10:39price may rotate around it a lot. In
10:41trending conditions, price may ignore it
10:43completely. So, I use it as reference.
10:45It's not necessarily a promise of
10:47anything. Now, the third way that I use
10:49volume profile is I'm using a fixed
10:52range volume profile. Now, how does that
10:54actually look? So, let's say we go back
10:56on this side of the chart and we want to
10:58see
10:59how the auction was actually developing
11:01within a specific expansion leg. Now,
11:04let's talk about from here to here
11:06towards the end of the day. Now, what
11:08I'll do sometimes is I will go here. I
11:11will draw a volume profile from swing
11:14high to swing low and extend it.
11:16And so, we get basically the same thing,
11:19but it's within a specific expansion leg
11:22or defined balance area or even a prior
11:25session range like London session or
11:28Asia session if I care to look at it.
11:30The reason I do this is because I am
11:33trying to isolate how volume was
11:36distributed over a specific leg or piece
11:40of structure. And usually I'm doing that
11:42over a clean expansion leg and I want to
11:44see where participation was thick and
11:47where participation was thin and and
11:49where the POC of that move is actually
11:51sitting. And this information can be
11:53useful as we watch price pull back into
11:56this move later on. So, the fixed range
11:59profile helps me frame location inside
12:02of structure. It narrows the zone, but
12:04it doesn't necessarily replace context.
12:07And that's really how I use these three
12:10methods together. The session profile
12:12sits in the broader context to
12:14understand how is the auction actually
12:16forming over the session that we're
12:17trading or the previous days. As we move
12:20into previous day regular trading hour
12:23sessions and the volume profiles that
12:26have been built previously or
12:27historically, and the fixed range
12:29profile helps me narrow location in the
12:33sense of a structural zone. And then the
12:35footprint candle when I'm zooming in
12:38on these candles and I'm looking at the
12:40volume profile within each of these
12:41candles, it's helping me refine my
12:44execution once everything else is
12:47already in place. Now, there are a few
12:49mistakes that traders will make when it
12:52comes to using volume profiles. The
12:56first mistake is treating low volume
12:59nodes like this as like automatic
13:01entries. Just because price moved
13:03quickly through an area doesn't mean
13:06that it's necessarily going to do it
13:08again or it doesn't mean that, you know,
13:11we're going to just automatically bounce
13:14out of a low volume node. A low volume
13:16node should just be treated as a
13:19location candidate. That's it. A
13:21location candidate. Somewhere where
13:23we're going to pay attention. It still
13:25needs context. It still needs location
13:28and it still needs confirmation. And the
13:30second mistake is using the wrong
13:32profile for the wrong job. Just because
13:34like the session profile is not and I
13:38don't use it for micro execution. The
13:41footprint candle itself is not used for
13:43broader auction or market context. Each
13:46profile has a time frame role, right?
13:49And that's how they work together in my
13:50stack and how I'm actually using these.
13:53And the third mistake which I see all
13:55the time when it comes to these types of
13:57candles like this or even just like
13:58session profiles is that traders will
14:01like over obsess on the POC. The POC is
14:04a great reference. And don't get me
14:06wrong, I use the POC all the time. And
14:08it can matter a lot in absorption
14:11scenarios inside of these, you know,
14:14miniature volume profiles and it can
14:16matter a lot in a balance condition
14:19in the broader context of the market.
14:21But let's say that during a trending
14:23environment, you know, price may never
14:26come back to it. So, if you treat it
14:28like a guaranteed target, you're going
14:30to potentially misread this. So, if I
14:33had to just summarize it simply because
14:36some people ask me like how am I using
14:37volume profile and I'm just trying to
14:39give a broad overview of what I'm
14:41actually looking at. Here's how I use
14:43volume profile. On the higher time frame
14:45in the session level, I'm using it for
14:47context. I want to know where value is
14:49actually sitting. I want to see where
14:51participation was being accepted and
14:53where the auction moved to quickly to
14:55actually build agreement. On the
14:57execution time frame
14:59on these candles, I use it to read
15:01effort versus result and to refine where
15:04I want to execute once the setup is
15:06already there. Now, I may look for
15:09pullbacks into low volume nodes. I may
15:11look for pullbacks into the POC of the
15:14previous candle and as long as it aligns
15:16with the rest of my framework then I
15:18take the trade. That's it. Volume
15:20profile
15:21is not a signal in isolation or a signal
15:26by itself. It's just a layer inside of
15:29the broader framework that I'm actually
15:31trading. There's a lot that actually
15:33comes before I'm looking at a volume
15:34profile. There's, you know, context in
15:37terms of market structure and bias and
15:39then understanding the environment we're
15:41in, looking at gamma, all these
15:42different things. But these volume
15:45profiles are just helping me understand
15:47where the auction accepted price, where
15:50it didn't, and where the execution could
15:52potentially be cleaner. So, before the
15:54session I'm looking at the prior
15:56sessions POC, the value area, the low
15:59volume nodes, the high volume nodes. And
16:01during the session, I'm watching it
16:03build for this RTH session in real time.
16:06And at the execution level, I'm using
16:08these miniature volume profiles to
16:11refine the entry after context and
16:14confirmation are already in place. And
16:16that is how I use volume profile in a
16:18nutshell. So, you guys have any
16:20questions, feel free to ask me in the
16:21comment section below.
16:23But I hope that kind of sums up a little
16:25bit or helps you understand a little bit
16:27about how I'm looking at volume
16:29profiles. I'm looking at value. I'm
16:31looking at acceptance. I'm looking at
16:33effort versus result. I'm understanding
16:34where the POC is at. I'm looking at
16:36value area, low volume nodes. I'm
16:38looking at high volume nodes. That's
16:40pretty much it. All right. Catch you
16:42guys next time. Peace.

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