Beginners Guide to Volume Profile Part 1: What is Volume Profile

VOLUME PROFILE DEFINITION: Volume Profile is a trading indicator which shows Volume at Price. It helps to identify where the big financial institutions put their money and helps to reveal their intentions.

How does Volume Profile look like?

Volume Profile can have many shapes – depending on how the volumes were distributed. It is created using horizontal lines (it is a histogram). The thicker the profile is, the more volume was traded at the given level. If a profile is thin in some place, then it means that there was not a great deal of volume traded there.

Here is an example of how Volume Profile can look.

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How is Volume Profile different to standard Volume indicator's on MT4?

Volume Profile shows volume at price. Standard volume indicator from MT4 (or any other software) shows volume during a specific time period.

There is a big difference!

Volume Profile shows you what price levels are important for the big trading institutions. Therefore, it points you to strong support and resistance zones.

Standard volume indicators only show you WHEN there were big volumes traded. This tells you nothing about important price levels (support/resistance zones).

What does Volume Profile tell us?

Let me demonstrate with an example:

In the picture below, you can see two heavy volume zones, and one zone where the Volume Profile is thin.

What does this particular picture tell us? It tells us that that big financial institutions were interested in trading in those two heavy volume zones. On the other hand, they did not really care for trading too much in the middle where volume was clearly thin.

This scenario could be a sign that big institutions were:

1) Building up their big selling positions in the heavy volume zone (1.1230 -1.1240).

2)Then they manipulated the price to go into a sell-off (that’s the thin profile).

3) And finally, they quit their positions (or were adding to them) in the heavy volume zone around 1.1205-1.1215.

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Different Volume Profile shapes

There are many shapes Volume Profile histogram can print and many different stories it can tell. However, the shapes and the stories behind them tend to repeat themselves and in the end, it comes down to just a few basic shapes the Volume Profile can take:

1) D-shaped Profile

Corresponds with a letter “D” and it is the most common shape. It tells us, that there is temporary balance in the market. Big financial institutions are building-up their trading positions and they are getting ready for a big move.

Screenshot_513

2) P-shaped Profile

Corresponds with a letter “P” and it is a sign of an uptrend. Aggressive institutional buyers were pushing the price upwards. Then the price found a fair value and a rotation started. In this rotation heavy volumes are traded and market is getting ready for a next big move. P-shaped Profiles are usually seen in an uptrend or in the end of a downtrend.

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3) b-shaped Profile

Corresponds with the letter “b” and it is the exact opposite of P-shaped profile.

b-shaped profiles are usually seen in a downtrend or at the end of an uptrend.

Screenshot_518

4) Thin Profile

Corresponds with the letter “I” (with little bumps in it).

Thin profile means a strong trend. There is not much time for building-up trading positions in an aggressive price movement. Only small Volume Clusters are created in this kind of profile.

One of my favorite trading strategies is based on those Volume Clusters!

Screenshot_517

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What makes Volume Profile different to other trading indicators?

No other indicator can show you where the big trading institutions were likely buying/selling like Volume Profile can! Why? 99% of all standard indicators are calculated only from two variables: Price and Time. Volume Profile gets calculated using three variables – Price, Time and Volume.

In other words – 99% of standard trading indicators only show you how the price was moving in the past. The only difference between those thousands of indicators is how they visualize it. It does not matter whether it is EMA, Bollinger bands, RSI, MACD, or any other indicator… All those only show a different visualization of a price movement in the past (they are delayed – they visualize something that has already happened).

YES – they are pretty useless which is the reason traders keep jumping from one to the other. 

Volume Profile, on the other hand, points you to zones which were and will be important for big trading institutions. Simply put – Volume Profile can show you what will happen in the future!

Why should we care about volumes and what the big institutions are doing in the market?

We need to know what the big financial institutions are up to for one simple reason. They dominate, move and manipulate the markets. It is them who decide where the price will go, not you or I. We are too small.

Have a look at the picture below. It shows 10 biggest banks and how much volume they control. Together it is almost 80% of the market. Just 10 banks!

It is those guys who own this game. Those are the guys we need to track and follow. And how do we follow them? By using Volume Profile to track their volumes.

Are there any simple Volume Profile strategies I can learn?

Yes, there are! They are based on the Volume Profile shapes I have already shown you. There is a separate guide where I show you step-by-step my favorite Volume Profile strategies.

You can learn the strategies here: Volume Profile Trading Strategies

I want an in-depth Volume Profile Education and training!

Congratulations! You are on the best place for that! I have designed unique Volume Profile educational courses, that will teach you all there is about Volume Profile!

You can chose the best fitting course here:

Dale’s Volume Profile Training

Happy trading!

-Dale

Beginners Guide to Volume Profile Part 2: Simple Volume Profile Trading Setups

In this article, I am going to show you my three most favorite Volume Profile setups.

All the setups can be used with any timeframe. I prefer 30-minute charts for intraday trading, 240-minute or Daily charts for swing trading and Daily to Monthly charts for planning long-term investments.

Setup #1: Volume Accumulation Setup

This is my favorite trading setup. You can trade it in three steps:

1. To trade this setup, you must first look for a price rotation/tight channel, which is followed by strong uptrend (or downtrend). What happens in such formation, is that big institutions are accumulating their trading positions (in the channel) and then they start an aggressive trend. A Long scenario would looks like this:

2. Use Volume Profile in the rotation area to identify where the heaviest volumes were. Draw a line there. This line will be your support (long trade scenario).

3. Enter your long trade when the price hits this support. No need to wait for any sort of confirmation, simply enter at first touch. It is also important to note that I only trade a level once.

Logic behind the Setup #1

Let me now explain the logic behind this setup. There are two reasons (factors) why the price reacts to these volume zones so well. This reasoning also applies to all the other volume setup I am going to show you later.

Reason #1: Strong buyers/sellers who were accumulating their positions are likely to defend their positions and their interests. So, when the price returns to the volume accumulation area, strong buyers/sellers start to defend their positions aggressively. This means that strong buyers start aggressively buying to drive the price upwards again and defend the previous level from which they accumulated their longs. Strong sellers defend their short positions by aggressively selling which moves the price lower again. Here is a picture to demonstrate this (long trade scenario):

Reason #2: Nobody wants to risk a fight with strong and aggressive buyers/sellers.

Let me demonstrate this on an example: First, strong buyers accumulated their positions in a sideways rotation. Then they pushed the price aggressively upwards (this is the long scenario of Setup #1). After that, the buyers stopped pushing the price upwards for a while and sellers took over. They were pushing the price lower and lower, but when they approached the strong rotation where the aggressive buyers had accumulated their massive positions, the sellers stopped their selling activity and closed their positions. Why? Because they didn’t want to risk a fight with strong and aggressive buyers.

When somebody who is in a short position wants to quit their position, he buys. So when those sellers start to buy to get rid of their selling positions, they drive the price upwards.

Let me make this more clear with a picture:

It is the combination of the two factors I showed you, that drives the price away from the support/resistance zones.

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Volume Profile Setup #2: Trend Setup

This is also one of my favorite Volume Profile Setups. Learn to trade it in four simple steps:

1. Trade this setup when there is a strong trend. So, the first step is to find a strong trend. If there is an uptrend, then you will be looking to trade long with the trend. If it is a downtrend, then you will be trading short.

2. When you have found a trend (in this case a downtrend), use Volume Profile in this trend to see how the volume was distributed throughout the move.

volume cluster

3. Look for significant volume clusters that were created within the trend. In this picture, there is one significant volume cluster in the middle of the downtrend. Draw a line from the place where the volume cluster was the widest. This will be your resistance area.

Screenshot_568

4. Wait until the price hits this level. Go short when it does. As with the previous example, there is no need to wait for any sort of confirmation.

The logic behind the Setup #2

The logic behind this setups is, that sellers were pushing price downwards and they were adding to their positions in the places where we see the volume cluster mid-trend. When the price hits the volume clusters again, those sellers will likely become active again and begin to defend their short position. This, in turn, will push the price down from these volume clusters again.

The same two factors I mentioned in the Setup #1 apply here as well.

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More Volume Profile Setups

If you would like to learn more of my trading setups, see more examples, learn more about trading with Volume Profile and trade with me every day then you may want to check my Volume Profile education packages here:

Dale’s Volume Profile Training

Happy trading!

-Dale

Beginners Guide to Volume Profile Part 3: Where to get Volume Profile & Setup Guide

Volume Profile is not a standard tool which you would find as a built-in indicator in any trading platform. You need to install it as an addon to your trading software.

It is very important to have a good quality Volume Profile

I have been trading with Volume Profile for many years but I have never really found a Volume Profile which would suit my needs. What I needed was a clean, quick, reliable, and easy to use Profile which I could use for intra-day trading as well as for swing trading.

So, what I did was that I found a high-quality trading software engineer, and together we developed Volume Profile which perfectly suited my needs. Actually, we developed more than one Volume Profile. We developed Flexible Volume Profile for NinjaTrader 8, and for MT4 platforms, and also Fixed Volume Profile for NinjaTrader 8.

Below are videos, which will show you those Volume Profiles in more detail.

Flexible Volume Profile for NinjaTrader 8 platform

This Volume Profile is the one I use the most. It’s coolest feature is that it is flexible and you can use it for any area in the chart you are interested in! This is essential in my trading strategies.


Fixed Volume Profile for NinjaTrader 8 platform

This Volume Profile shows you the bigger picture using Fixed Profiles. It is best used as a combination with the Flexible Volume Profile.


Flexible Volume Profile for MetaTrader 4 platform

This Volume Profile was developed for those who prefer MetaTrader 4 to NinjaTrader 8 platform. This profile is easy to set up and very easy and intuitive to use. It does not have as many features and it is also not as precise as the Flexible Volume Profile for NinjaTrader 8. The reason for this is that MetaTrader 4 is an older platform and it has its technical limits.


Where to get Volume Profile?

You can get my Volume Profile indicators from my website, either as a part of any of my educational packages (Trading pack, Learning pack, or The Elite Pack), or you can purchase the Volume Profiles separately.

You can get them here: Dale’s Volume Profile Indicators and Education

All my Volume Profile indicators have lifetime licenses and you can use them on multiple computers.

Do you want ME to help YOU with your trading?

Join one of my Volume Profile Educational courses and get my private trading levels, 15 hours of video content, my custom made Volume Profile indicators, and more!

Where to get good volume data?

If you want to use the Flexible Volume Profile for MT4, then your broker will provide  you data automatically. It will not be the best, but there is not much you can do about it. MT4 has it’s limits…

If you want to use the more advanced Volume Profiles for NinjaTrader 8 platform, then you can choose what data you will use – Centralized (futures) or Decentralized (forex).

Centralized (futures) vs. Decentralized (forex) data

If you want to have as precise volume data as possible, then you need to get it from a centralized exchange. This is not a problem for stock or index traders, but it is a bit more complicated for us, forex traders. As you may already know, the forex market is decentralized. Which means that every broker has a bit different data, they can quote a bit different prices and their access to information about volumes is limited. The truth is – forex brokers will never provide you with a complete and precise information about volumes. Good news is that big brokers, like for example FXCM that I use for data feed (and for data feed only) have pretty good information about the volumes, and even though this broker covers only a part of the forex market, it provides a pretty good and precise information about volumes. It is not 100 % precise, but it is precise enough to base your intraday trades on. It is more than enough to plan your swing trades – since those don’t need to be as precise as intraday trades.

If you want to have your volume data 100 % precise, then you need to use centralized market, which is futures (you can use for example CQG data feed). Unfortunately, there aren’t futures for all forex pairs, but there are futures for all the major currencies. Futures for EUR/USD is called 6E, AUD/USD is 6A, USD/CAD is 6C, USD/JPY is 6J,…

If you use futures data, you can be sure, that everybody on the planet sees the same volume and price data as you do. This is because of the futures centralization.

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Data for intraday trading

I use futures only for my intraday trades on EUR/USD (6E), AUD/USD (6A), USD/CAD (6C) and USD/JPY (6J). After I finish my level analysis, I recalculate my trading levels from futures into forex values (more on how to do this in my Video Course), and then I execute my trades on forex (with my forex broker). This is, in my opinion, a bit cheaper than to trade currency futures directly.

Using futures like I do is not entirely necessary though. You can still pretty safely rely on forex data and volumes provided by FXCM which provides volumes pretty close to centralized futures volumes.

Data for swing trading

As far as swing trading is concerned, forex data and forex volumes are in my opinion quite sufficient. You don’t need as precise data as for intraday trading with your swing trades.

The bottom Line Is...

If you want to be extremely precise in your intraday trading, then do your analysis using futures data. Still, good quality forex data (for example from FXCM data feed) is enough to create profitable trading levels. If you trade swing trades, then don’t bother with futures and do your analysis with good quality forex data (FXCM).

  • If you want to use good forex data for yout NinjaTrader trading platform, then I suggest you open a free demo account with FXCM and get their free lifetime data feed. Here is a link: Unlimited FXCM data (demo).
  • If you prefer doing your analysis using futures data, then you can use a free trial version of CQG data. The trial version is email bound, and it will expire after some time. Get it here: CQG futures – free demo

Want to learn more about Volume Profile trading?

If you would like to learn more about Volume Profile trading and have a professional trader to help you with anything you need, then the best thing you can do is get one of the Educational Trading Packages. More info here:

Dale’s Volume Profile Education and Tools

Happy trading!

-Dale