Trading With Volume Profile in a Price Rotation

There are just a few basic shapes the Volume Profile can print. It is the D-shape, P-shape, b-shape and the Thin profile shape.

More on the other shapes here:

Basic Volume Profile Shapes

D-shaped profile

The most common shape is the D-shape. It is called the D-shaped profile because the volume histogram shape corresponds with the capital letter D. The reason this profile shape is the most common is that it forms when there is a rotation. If you look at any time frame on any trading instrument you will see that around 70-80% of all the time markets spend in a rotation! That’s why the D-shaped profile is so common.

How to trade the D-shaped profile?

The way I prefer to trade this one is to look for shorts at the highest extremes of the D-shaped area and look for longs at the lowest extremes of the D-shaped area. When there is a D-shaped profile then I don’t trade the Trend Setup (because there is a rotation).

Below, you can see a Weekly chart of USD/CHF. There is a long-term rotation (over 5 years long) and the Volume Profile shows a nice D-shape. I marked the zone where to look for short trades and also the zone for longs. The Short zone is at the top of the D-shape, The Long zone is at the bottom.

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What exactly to look for?

What you want to look for are significant Volume Clusters which got created in the short or long zones (extremes of the D shape).

In this case, there is a nicely visible Volume Cluster created at the bottom of the D-shape (in the Long zone). This could work as a strong support!

Where EXACTLY did this Volume Cluster got formed? If you look at the chart it is pretty obvious, that it was in the strong rejection of lower prices from January 2018.

What you can do to make sure (and also to pinpoint the exact location) is that you can use the Flexible Volume Profile to look into this rejection and see how the volumes were distributed there.

I did just that in the picture below. There were pretty nice and heavy volumes created at the bottom of the rejection!

What this means is this: Sellers were pushing the price aggressively downwards. Then strong buyers came. There was some time of volume accumulation (buyers entering longs) and then the buyers became aggressive and they pushed the price swiftly upwards.

The Volume Cluster I marked in the picture points us to a place where the buyers entered most of their positions.

When the price makes it back to this level again sometime in the future, then it is pretty likely that the buyers will become active again and they will push the price upwards (again).

This is why I think this area will work as a strong support.

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I hope you guys liked this article. Let me know what you think in the comments!

Happy trading!

-Dale

EUR/GBP – VWAP Intraday Analysis

Today I would like to have a closer look at the EUR/GBP using the VWAP indicator.

I am interested in intraday trading levels, so I am going to start with a zoomed out 60 Minute chart which enables me to see the bigger picture.

In the picture below you can see than there is a nicely visible downtrend. You can tell by looking at the simple Price Action.

Another way how to tell whether there is a trend or no is the VWAP. I dare to say that VWAP is a faster and more reliable way. The reason is that VWAP is calculated using Price and Volumes. What you want to see in a downtrend is not only price going down, but also volumes shifting downwards. If there is a downward movement without Volumes, then it lacks strength!

How do you tell if there is a trend using VWAP?

It is pretty simple. When the two grey lines (1st deviations of VWAP) start moving upwards or downwards, there is a trend. If they move horizontally, then there is a sideways rotation.

If you look at the picture below, you can see that the 2 grey lines were moving downwards in the previous week (= downtrend).

Another nice thing worth pointing out is the reactions of the price to the 1st Deviation. When there is a downtrend then the price moves below the 1st Deviation line and reacts to it from below.

I marked those reactions with red circles and arrows.

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VWAP and Rotation

Right now it seems that the downtrend is over (at least temporarily).

The price started to rotate.

Weekly VWAP and it’s 1st Deviation move sideways. When there is a rotation, then 1st VWAP deviations work as supports and resistances.

After such downtrend, I am not really into longs and I look for short trading opportunities only.

If you look at the picture below, there is the 1st Deviation of VWAP in the higher part of the rotation (good area for shorts).

Volumes

The reason this Resistance caught my attention is not just because of the VWAP Deviation and Price Action.

Those of you who know me for some time know that I always want to see some heavy volumes at the support/resistance levels.

The thing I like about this trading level is that there actually are pretty heavy volumes there! Actually, there is a Volume Profile trading setup, which I call the Volume Accumulation Setup.

With this setup you want to see a price rotation, which is followed by buying or selling activity. Heavy volumes in the price rotation work as a resistance.

Below, there is the same chart, only zoomed in a bit, with 30 Minute time frame (*with Daily VWAP ):

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To sum this up

There is a strong resistance around 0.8330.

Reasons:

1) Downtrend on EUR/GBP (I am looking for shorts).

2) 1st Deviation of Weekly VWAP is a resistance.

3) This resistance from the 1st Weekly Deviation is confirmed by heavy volumes (that’s the last picture).

When the price returns back to this area I think that there is a solid chance that strong sellers will defend the 0.0.8330 zone and they will try and push the price downwards again!

I hope you guys like this! Let me know what you think in the comments below!

Happy trading!

-Dale