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0:00 Welcome to the Ultimate Guide to the Volume Profile. In this video, we're going to break down one of the most powerful market analysis tools available to traders and show you how to use it in a practical way. You'll learn what the Volume Profile is, how it works, why it matters, why professional traders rely on it, and how they use it to anticipate the next market move with striking accuracy. We start this course by realizing something very important. All trading strategies attempt to understand what's happening behind price action. But here's the interesting part. You don't have to guess what's happening behind price action just by looking at price alone. With the right tools, you can actually see what's happening behind it. This is where order flow comes in. Order flow is what creates price action in the first place. And order flow is nothing more
0:49 than a detailed breakdown of trading volume. In other words, volume activity produces price movement. So if you want to understand price action, you need to understand what caused it. Another way to say this is that volume leads price. To call Richard Wyckoff, the pioneer of smart money concepts, the tape tells the truth, but one must learn how to read it. The tape was the closest thing Wyckoff had to what we now call order flow. The relationship between price and volume has been recognized for more than a century by the giants of technical analysis. Wyckoff is particularly important because he developed many of the ideas that later evolved into what people call smart money concepts nowadays. Wyckoff's methodology is built around three fundamental laws.
1:38 The law of supply and demand, the law of cause and effect, and the law of effort and results. The one that interests us the most today for the study of the volume profile is the law of effort and results. According to Wyckoff, Volume represents effort and price represents the result of that effort. In other words, the amount of effort in the market, the volume, should produce a proportional result in price movement. This means that price action is ultimately a consequence of trading activity. So, if we want to understand price, we should also understand the effort that generated it. Price shows us what happened. Volume helps explain why it happened and where it mattered most. One way to think about this is with a simple
2:26 analogy. Think about the market as the ocean. Price represents the waves on the surface of the water. Volume represents the currents underneath. The currents directly influence what happens at the surface, even though they are not immediately visible. This is why studying volume is extremely important, and why so many professional traders rely on volume-based tools. Given the importance of volume, There are essentially two main ways to observe volume on a chart. Volume at time and volume at price. Volume at time measures how much trading activity occurred during each time interval. This is exactly what the old volume histogram shows. Each bar in the histogram represents the total
3:12 amount of volume traded during a specific candle or time period. Because the histogram is tied to time, The bars appear vertically along the x-axis of the chart. When traders combine Wyckoff's law of effort and results with volume at time, they arrive at techniques such as volume spread analysis, or VSA. Very briefly, VSA compares the range of a candle with the amount of volume traded during that candle. According to Wyckoff's principle, effort should produce a proportional result. In other words, high volume should generally produce wide price movements. and low volume should generally produce narrow price movement. When this relationship holds, we say there is harmony between effort and result. But sometimes the opposite happens. For example, high volume with narrow
4:03 price movement can indicate absorption. Low volume with wide price movement may indicate lack of opposition. These situations are known as divergence in volume spread analysis. If you want to explore this concept in depth, I have a full video about PSA in the channel. In today's video, however, we are more interested in the second way of analyzing volume, which is volume at price. Volume at price measures how much trading activity occurred at each price level rather than during a time interval. This is exactly what the volume profile shows. Instead of displaying volume vertically across time, the profile displays volume horizontally across price levels. along the y-axis of the chart. In other words,
4:48 the volume profile shows where trading activity was concentrated across a range of prices. Professional traders use the volume profile for three main reasons. The profile highlights volumetric structure behind price. The volume profile is one of the order flow tools that cannot be manipulated. And volume at price is better than volume at time. Let me quickly illustrate these three points so you understand Why pro traders choose the volume profile? Most of the videos you see on YouTube only talk about the most obvious type of market structure, which is price-based. So things like highs and lows, swing points, break of structure, change of character, market structure shift, internal and external structure, displacement, inducement, range, and so on. All of this stuff is important
5:39 without question, but they are just the tip of the iceberg, no pun intended. The second type of structure is based on volume. Here's where the several order flow tools come in, such as the DOM, footprint, volume profile, CVD, view up, liquidity heat map, big trades, and so on. These are just the tools. Each tool contains several of its own techniques. The next type of market structure is based on time. This one is based on Steidlmeyer's market profile approach, which is the basis for all order flow tools you see nowadays. The fourth type of structure is based on volatility. This relates to the understanding of how dealer hedging flows impact liquidity and volatility in a market. This involves things like gamma exposure levels, call resistance,
6:27 put support, gamma walls, and so on. Ideally, a professional trader must have a good understanding of all four types of structure, not just price. I have free courses in the channel about all four dimensions of market structure. I also have a free video about liquidity, which is not a market structure dimension, but it's an important property of the market environment. So in summary, professional traders use the volume profile because it's one of the best tools for detecting volume-based market structure behind price. The second reason pro traders use the volume profile is because it's one of the order flow tools that cannot be manipulated. There are basically two types of order flow tools, the real-time tools and the historical tools. Realtime tools show the current intent of market players.
7:15 In other words, the orders that might be executed. The best example of this is the DOM, which shows the limit orders above and below the current price. The problem with Realtime Orderful tools is that they are subjected to different kinds of manipulation. Some examples include spoofing, which is placing large orders to create the illusion of strong buying or selling pressure and cancelling them before execution. Iceberg Orders, which is hiding the true size of a large order by showing only a small portion in the order book. Layering, which is placing multiple orders at different price levels to influence market perception. And Order Pulling, which is rapidly removing liquidity just before price reaches a level. In other words, astute market participants can influence the perception of
8:05 intent in the order book or DOM, which can make real-time order flow a very misleading game. Because limited orders can be added, modified or cancelled at any moment, the apparent liquidity in the market does not always represent genuine trading interest. Historical order flow, on the other hand, cannot be altered in the same way because it reflects transactions that have already occurred. Once orders are executed and recorded in the market's transaction history, they become part of the permanent record of market activity. For this reason, historical order flow tools provide a more reliable view of what actually happened in the market, whereas real-time tools primarily show the evolving intentions of market participants. The volume profile is one of the best historical order flow tools along with the
8:52 footprint. The third reason is that volume at price is better than volume at time. Volume at time simply shows the total volume traded within equally spaced intervals of time. While this can be useful in certain situations, is not the most effective way of analyzing volume activity. Volume at price, however, reveals the volumetric structure behind price movements, which is exactly what we're trying to understand. Before we examine the elements of the profile more carefully and how to use it in your trading, it's important to understand how professional traders think about markets, price, and volume. For that, we need a brief summary of the auction market theory. Auction market theory states that financial markets work as a continuous auction process through which buyers and sellers negotiate price in
9:40 order to discover fair value. Buyers and sellers interact in real time according to their opposing self-interest. Buyers want to buy at the lowest possible price, while sellers want to sell at the highest possible price. Because of this, price becomes the point of compromise between these two forces. When buyers and sellers relatively agree on the perception of value, the market tends to move sideways. Price oscillates within a range because both sides consider that range to be fair value. As price rotates back and forth within that range, trading activity accumulates in that area. In the volume profile, this appears as larger horizontal bars because a large amount of trading occurred within that range of prices. This is known as an area of balance or an area of fair value, where supply and
10:28 demand are relatively balanced. But sometimes buyers and sellers strongly disagree about value. When that happens, one side becomes dominant and the market enters what is called price discovery. In this phase, price moves quickly through a wider range as the market searches for a new level where buyers and sellers can agree again. Because price travels quickly through these areas, less trading occurs at each individual price level. As a result, these areas appear as smaller bars in the volume profile. Eventually, price finds a new range where trading activity concentrates again and the market returns to balance. Markets move from balance into imbalance and from imbalance back into balance. This process
11:13 is essentially a price discovery mechanism. The market is always seeking equilibrium, but because new information constantly changes the perception of buyers and sellers, equilibrium is never fully reached. What shifts the balance between supply and demand is the arrival of new information, which alters participants' perception of value relative to price. For example, if new information increases demand, price will enter bullish price discovery. If new information increases supply, price will enter bearish price discovery. In other words, markets are driven by information, not liquidity. Liquidity is simply the mechanism through which changing perceptions of value are translated into price movements. This idea is closely related to what
11:59 Adam Smith described in The Wealth of Nations as the invisible hand of the market. Individuals pursuing their own self-interest unintentionally create a mechanism that guides markets toward fair value. Buyers try to buy low, sellers try to sell high, and through this interaction, the market discovers the price that reflects perceived value. To summarize, balanced markets are sideways markets, where trading activity accumulates. This represents fair value. These areas appear in the volume profile as high volume areas. Imbalanced markets are trending markets where price moves quickly through a range. This represents unfair value or price discovery. These areas appear as low volume areas. The volume profile simply
12:46 reveals where the market found agreement and where it moved quickly in search of agreement. Given that basic understanding of how the auction market theory relates to the volume profile, let's dive deeper into the elements of the volume profile. The volume profile has two main elements, the value area and the point of control. These ideas are based on the observation that when markets are in balance, the distribution of trading activity across prices often resembles a normal distribution, also known as a bell-shaped curve. In statistics, the empirical rule states that 68% of observations fall within one standard deviation of the mean, 95% fall within two standard deviations, and 99.7%
13:32 fall within three standard deviations. In the context of the volume profile, traders approximate this principle by defining the value area as the price range that contains 70% of the total trading volume, meaning the price activity contained in one standard deviation away from the mean. In other words, the value area represents the range of prices where most trading activity occurred. This is the region where buyers and sellers negotiated the most, which is why it's often interpreted as the market's area of fair value. When the market is balanced, price tends to rotate within this region because buyers and sellers largely agree that these prices are reasonable. The point of control, often abbreviated as POC, is the price level where the greatest amount of trading volume occurred. In the profile, it
14:22 appears as the largest peak in the distribution. Because the POC represents the price where the market spent the most effort trading, it is often considered a very important price level. Here's an important insight that will make all the difference when we look at the volume profile strategies. The 70% value area is considered the broad value area, but many order flow traders use what is called a core value area, which is 40%. This is a more precise setting with many different uses as you'll learn later. If you're enjoying the video so far, don't forget to click the like and subscribe if you haven't already. The volume profile also has what are called high volume nodes and low volume nodes. A high volume node is simply a price level where the volume profile peaks. So technically speaking, the point of control is a high volume node,
15:11 but in any profile you'll be able to find secondary peaks that are also important beyond the point of control. Low volume nodes are price levels where volume is the lowest, a valley or trough in the profile. These represent price levels with the least amount of volume, or price levels the market found to be extremely unfair. You often see low volume nodes inside fair value gaps, for example. A fair value gap sometimes works not because of the fair value gap itself, it's because it often hides a low volume node behind it due to the quick price displacement. Just as Wyckoff described effort and result using volume at time, we can apply the same principle to volume at price. In a consolidation or balanced market, a large amount of trading activity
15:57 occurs within a relatively narrow range of prices. This represents high effort with limited price movement, which indicates acceptance of value. In contrast, trending markets often show relatively low trading activity spread across a wide price range. This represents less effort producing larger price movement, which indicates rejection of value. In simple terms, the volume profile shows where the market spent the most time agreeing and where it moved quickly in search of agreement. There is an important connection between volume profile and liquidity. Areas of acceptance, where price moves sideways and the profile shows relatively high volume, tend to reflect higher liquidity. In these areas, a large amount of trading activity is absorbed within a relatively narrow price range. By contrast,
16:47 areas of rejection where price moves directionally and the profile shows relatively low volume tend to reflect lower liquidity. In these areas, less trading activity is needed for price to travel across a wider range. So liquidity pools and voids don't exist only above highs or below lows. They exist everywhere in between. One major insight from the volume profile and auction market theory is that price tends to be attracted to previous areas of fair value, balance or acceptance, and repelled from previous areas of unfair value, imbalance or rejection. Price action traders define trends in a simple way. An uptrend occurs when price forms higher highs and higher lows, while a downtrend occurs
17:33 when price forms lower highs and lower lows. This description is correct, but it focuses only on the visible structure of price, which is only the surface of the market. An order flow trader looks at the same phenomenon from a different perspective. From the point of view of auction market theory, trends occur when the market is searching for a new area of balance. In an uptrend, the market continuously finds higher areas of balance, meaning that the perceived fair value of the market is moving upward. In a downtrend, the opposite occurs. The market keeps establishing lower areas of balance, meaning that the perceived fair value is shifting downward. A trend is not simply a sequence of higher highs and higher lows or lower highs and lower lows. A trend represents
18:19 a migration of value, where the market continuously moves from one area of balance to another. We can detect simple trend reversal and continuation signals using the order flow logic built in the volume profile. In an uptrend, characterized by progressively higher value areas, when we see a lower value area, we have an indication that the trend might reverse. The opposite is also true, of course. A higher value area in an already established trend of lower value areas means a possible reversal. For continuation signals, we first need the minimum requirement for a trend. In an uptrend, a single value area forming higher than the previous one is enough to suggest a continuation. When that happens, we can reasonably assume the next day or session is more likely to
19:07 maintain that upward pattern. In a downtrend, a single value area forming lower than the previous one is enough to suggest continuation. When that happens, we can reasonably assume the next day or session is more likely to be bearish. This is extremely useful for establishing directional bias for the next day or session. Another possibility that emerges when we analyze the progression of value areas in the profile is the expansion or contraction of the auction. Expansion and contraction are neutral auction states. that describe how the market is facilitating trade, not the direction of price. In summary, one very simple way of determining the next day or next session bias using the volume profile is to compare the last profile against the second last profile. For example, in this chart we can
19:56 see a series of progressively lower value areas in the profile. The first time a higher value area appears, we have a trend change and price starts going up. Before we start using the volume profile, it's important to understand the different types of profiles and how to set it up correctly in TradingView, because the default settings are not ideal. There are several types of volume profiles available, but in my opinion, the two most useful are the Session Volume Profile, which calculates the profile for each trading session, and the Fixed Range Volume Profile, which allows you to analyze the profile of a specific range of price action of your choice. To find these tools in TradingView, simply go to Indicators, then Profiles, and select the type of volume profile you want to use. One of the most important settings to adjust is the precision of the profile.
20:47 The default settings in TradingView tend to produce profiles that are too imprecise. To improve this, open the Profile Settings, go to Inputs, change Row Layout to Number of Rows, and increase the row size to a large value, such as 400. This significantly improves the resolution of the profile. I also recommend enabling the following elements. Value-Area-High, Value-Area-Low, and Point of Control. These are the most important reference points in the profile. Here we have a real example of how the number of rows affects precision. This is the session volume profile of NASDAQ in the 15-minute time frame. Here we see a profile with 24 rows, which provides low resolution. When we change the number of rows to 400, Now the profile becomes a lot more
21:35 detailed and precise. Notice that the point of control and value area extremes shift because of that, which can of course directly impact your trading decisions. Some order flow traders question the reliability of TradingView volume profile because it is calculated using a method known as heuristic approximation. This means that the platform estimates how volume is distributed across price levels rather than using a true tick level order flow data. Professional order flow platforms, such as ATAS, can calculate the profile more accurately, which provides a more precise breakdown of trading activity. However, if we compare the profile generated by TradingView with the profile generated using more precise data, something interesting happens. On the right, we
22:20 have the volume profile in ATAS, which is a professional order flow platform using tick-level order flow data. On the right, we have TradingView's volume profile, Although there may be small differences, the most important elements tend to remain consistent. The overall shape of the profile, the point of control, and the value area boundaries. This is especially true if the row size is properly adjusted in TradingView. If we overlay TradingView's profile on top of the Athos profile, we can see that it basically shows the same shape with tiny differences. If you want to perform very precise order flow analysis, such as order flow scalping, then a professional platform that uses real order flow data is preferable. But if your goal is to use the volume profile as a contextual tool for understanding
23:06 market structure, TradingView works very well. The professional order flow platforms also allow you to use more advanced tools such as liquidity heatmap, big trades, iceberg detectors, spit of tape and dozens of other tools. We'll talk about those in future videos. Ultimately, the volume profile is simply a way of measuring the statistical distribution of trading activity across price levels. And statistics is fundamentally about making reliable inferences even when we do not have complete information. This is why heuristic approximations are often sufficient to capture the overall structure of the market. Let's now move on to the volume profile strategies, setups, models and playbooks used by professionals, starting with the simplest one.
23:51 Now that you have an intuition for what generally happens with the volume profile in sideways and trading markets, we can arrive at a price action strategy based on common profile shapes. This is called the PBD method. The P profile is basically an uptrend followed by a consolidation, which usually translates into a P-shaped volume distribution. The B profile is the opposite, a downtrend followed by a consolidation. The D-Profile is basically a sideways market. The way price action breaks out of these ranges creates specific trade setups. Let's quickly go over the P-setups. The first setup involves a simple breakout and retest to the upside. Price will break out the upper boundary
24:37 of the consolidation with a decisive candle and then retest the upper boundary as support before resuming the movement upwards. Another flow trader would take this to the next level and observe subtle signs of buying aggression in the breakout and buying aggression or selling absorption in the retest. Another possibility is when price breaks out the range to the downside only to re-enter it again right next. This is a classic example of bear trap. Price will often retest the lower boundary of the range as support and go at least to the other side of the range. In some cases, price will continue the uptrend from there. The trick is observing signs of absorption and aggression in these breakouts to confirm what's happening. In a P-profile, it's also possible that a bull trap
25:24 occurs in the upper boundary of the range. Price then re-enters the range and goes at least to the lower boundary. The fourth possibility is that Price breaks out of the range to the downside, retests the lower boundary as resistance, and then goes to the downside. This would be an example of markup distribution markdown. In the B profile we have the same four scenarios but with the inverse logic, as you can see here. In the D profile we have basically two scenarios, the false breakout to either side and the real breakout to either side. An order flow trader would establish the boundaries of the range using the value area extremes in the volume profile, while a price action trader would simply use the apparent boundaries established by price action. Another
26:11 similar strategy using the value area is called the 80% rule. If price opens outside the previous session's value area and then re-enters it, there is roughly an 80% probability that the market will trade across the value area toward the opposite extreme. However, one subtle but important clarification often added by market profile practitioners is that the market must show acceptance inside value, not just a quick tick back inside. Here's an example of this. In the highlighted blue profile, we have the regular trading hours session in the S&P. This establishes the value area for the next session, which would be the extended trading hours or overnight session in orange. Notice how price opens below the blue value area and then re-enters it. This is a signal that price will go to the
27:00 opposite extreme of the blue value area, which it does. Let's move on now to one of the two main models that use the volume profile. This model is relatively easy to use and involves using the fixed range volume profile with the 40% core value area. For a demand zone, first we identify a high and a higher high. Next, we anchor the fixed range volume profile from the high to the higher high using the core value area of 40%. Ideally, the value area should be near the low in between the highs, highlighting an implicit demand zone and price action. The idea is that the next retracement we'll come back to this demand zone and start the next impulse move. For a supply zone, first we identify a low and then
27:46 a lower low. Next, we anchor the fixed range volume profile from the low to the lower low using the core value area of 40%. Ideally, the value area should be near the high in between the lows, highlighting an implicit supply zone in price action. The idea is that the next retracement will come back to the supply zone and start the next impulse move. Here we have an example of the core value zone model in British pound futures. Notice that we have a high, a higher high, and consequently, a strong low in between. The next step is to anchor the fixed range volume profile from the high to the higher high like so, using the core value area of 40%. This highlights where the demand zone is most likely to be.
28:32 In the next candles, we see a very strong reaction to the zone. Price then comes back to the value area high once again to test demand, and finally takes off. Here we have an interesting example that highlights how even a failed zone can be profitable. We have a low and a lower low, which renders the high in between as strong. Plotting the fixed range volume profile from the low to the lower low, we get the likely supply zone like so. Eventually, we see price returning to the supply zone and rotating around it. After that, price breaks the value area high, demonstrating the supply zone failure. The failed supply zone now becomes a valid demand zone and a few candles later we see price rejecting the demand zone as expected. This
29:17 candle right here is the signal for the uptrend continuation as we can see here. The second model is based on the fact that order flow traders use the previous day's profile or previous session's profile to gauge the activity in the current day or session. We can split this model in two categories. For index futures like S&P, NASDAQ and DAO we'll use regular trading hours profile and the extended trading hours profile. For currency futures, we're going to use the Sydney, Tokyo, London and New York profiles. For index futures, the regular trading hours are associated with the cash equity session. It goes from 9.30 to 16 New York time. The extended trading hours, also known as the overnight session, goes from 18 to 9.30 New York time.
30:06 The idea is very simple. we use the ArchTH profile to find key areas for the ETH and vice versa. These key areas come from the main elements of the profile, the point of control and the value area extremes. We can use either the broad value or the core value zones, as it was explained earlier. Let me give you a few examples so you can see how this model can be applied. In this chart, you can see the boundaries of the RTH and the ETH sessions. The blue profile represents the ArchTH profile using the core value area of 40% in this case. If we extend the value area into the ETH session, we see that the core value area works extremely well as a supply zone, highlighting one of the main reversals of the overnight session. Here we have another example, but now using a broad
30:55 value area of 70% in NASDAQ to find a demand zone. The zone also pointed to a main reversal point in the overnight session. Here we see an example of ETH core value zone providing a key level for the subsequent RTH session. Notice that RTH opens rejecting the ETH point of control and value area high. In the next couple of candles, price comes back into the core value zone and tests the value area low. The next candle sets the tone for the remaining hours of the RTH session. Price rejects the value area low and closes above the value area high in a wide range, decisive bullish candle. Price immediately goes up after that. We can use a similar idea to trade currency futures, but now using the fixed
31:44 range volume profile anchored to the entire sessions and or the overlap between sessions. For example, here we have the fixed range volume profile anchored to the London session in Euro futures, which is the blue zone. I'm using the core value area for better precision in this case. Notice that when London closes and New York continues, price comes back to the point of control established by the London session, which highlighted the main price movement of the New York session. Here we have another example where the overlap between the Sydney and Tokyo sessions highlights a major reversal point in the London session. Notice that just by paying attention to the simple zone, you could have made one high probability trade to catch the major London move. Here we have the New
32:31 York volume profile gauging the low for Sydney in Tokyo sessions with the value area high. You get the idea. Trading sessions provide objective places to put the profile. And since many professional traders look at these specific profiles, there's a higher chance that price will react to these levels. Notice also that these levels cannot be seen simply by looking at price action. You need the volume profile. That's it for this course. But believe me, When it comes to order flow, there's a lot more to learn. If you want to go deeper into the main order flow tools, I have a premium course called Advanced Order Flow Trading. You can check it out in the link below. I also offer several other premium courses and ebooks beyond the vast material you can find for free in the channel. For more information, please visit my website fractalflowpro.com
33:20 or send me an email at support at fractalflowpro.com. If you enjoyed this video and wish to support the channel, please click the like button. subscribe to the channel, activate the notifications, leave your comment below, and share the video with your trading community. Thank you very much for watching, and I hope to see you in the next videos. Take care.
