Volume Profile Setup | My 4-Point Trading Checklist

I’ll show you a Volume Profile setup that I use in my own trading. And to make it as clear and practical as possible, I’ll give you a simple four-point checklist that will help you identify when this setup is actually strong and worth trading. So, let’s get to it.

Now, here is a little recap of that checklist. Here are all four points.

The first point is that the market should be rotating, right? First point on the checklist.

Second point, the rejection needs to be strong.

Third point, the volumes need to be distributed well.

And the fourth point, there needs to be a fair value gap.

If all those points check out, then the rejection is most likely going to work. It’s most likely going to be a strong resistance or support zone. Now, not all those conditions need to be met because, in trading, nothing is ideal, obviously. So, at least for me, it’s fine if only three conditions from this little list are met. If three conditions are met, then I still trade the rejection. I still consider it a strong support or resistance zone, right? Obviously, if it’s all four, then even better. But if three conditions are met, it is still good to trade.

All right. Now, let’s put this into action, and let me show you how I trade this. I’ll give you two examples of two trades. In here, I have that checklist for you, so we can check it as we go.

So, the first thing, the most important thing to do, is identify a good rejection using this checklist. So, let’s check out this one, this rejection right here. Is the market rotating? Yes, it appears to be rotating. Even though I don’t have the Volume Profile printed here, you can see that the market is going up and down, up and down. It’s rotating, right? So, yeah, this checks out.

Is the rejection strong? Look at the high. Is it strong or not? There’s this clear high, right? The high of this candle. So, yeah, it is a strong rejection. So, that’s good as well.

Now, let’s check out the volumes. Are the volumes distributed well? We have this heavy volume zone right here. Very good-looking. And above that, a low volume zone. All good so far. The market is rotating. The rejection is strong. Volumes are distributed well.

Now, is there a fair value gap? There is, right here. A fair value gap showing us the aggression of sellers. So, all this checks out, right? We have a strong rejection. Now, the only thing we need to do is trade this.

So, how do I trade it? After I spot a good-looking rejection, I want to see a pullback back into the zone where the heavy volumes were formed before. This is a resistance for me. The resistance is not at the top of the rejection. It is the heavy volume zone. That’s the most important zone because the heaviest volumes in that rejection were formed there, right?

So, that’s the resistance I want to trade. Resistance is not just a level. It’s always a zone. The beginning is usually at the beginning of that heavy volume cluster. And ideally, if it’s also the beginning of the fair value gap—and you’d be surprised, but very often it is—the beginning of the heavy volume zone aligns with the start of the fair value gap.

So, in this case, this would be the short level, and if the price hits that level, then it is a short from there. So, again, you need to see a rejection. You wait for a pullback to the heavy volume zone, and from the beginning of the heavy volume zone, you go short.

All right, this is how I trade rejections. Let’s take a look at another example in here. This is a bullish scenario. We have this rejection, and again, the first thing is that we need to check whether this is actually a good rejection or if it is a trap.

All right. So, let’s go through the checklist again. First thing, is the market rotating? Look at this. Up and down, up and down, up and down. Yes, the market is rotating.

Is the rejection strong? Yeah, this is a beautiful low. This is a strong low. Let me delete that so you can see it better. Right. Strong low. So, all good so far.

Are the volumes distributed well? We have a clear volume cluster in here, and below that, a low volume zone. So, yeah, the volumes are distributed well.

Is there a fair value gap? Well, in this case, I would prefer the fair value gap to be somewhere in here, right above this heavy volume zone. We do have a fair value gap, but it is a little bit higher. Let me mark that for you. This bullish fair value gap begins in here, but I would prefer if it actually began in here, at the beginning of the volume cluster.

In this case, it’s not so clear-cut. But if we go through the checklist, then the market is rotating, the rejection is strong, the volumes are distributed well, but the fair value gap is above the place where I would like to trade. It’s not above the heavy volume zone.

So, in this case, I would look at it like this because the fair value gap is there, but it’s a bit higher, right? So, if I wanted to be strict, the checklist would look like this. But still, three conditions are met, which means this is still a good trade to take, right?

So, how do you trade this? Mark the beginning of the heavy volume zone, and you can use a limit order there. Just place the limit order, wait for the pullback, and when the price hits that level, hits your limit order, then go long from there.

All right, guys. So, that’s about it. I hope you liked the video. If you want to learn more about how I trade with Volume Profile and get your hands on my custom-made Volume Profile indicator, then head over to my website, which is trader-dale.com. And if you click this button here, Trading Course and Tools, then it will bring you to a page where you can check out my trading education and custom-made tools.

So, thanks for watching the video, and I’ll see you next time.