🎯Trade of the Week | Spotting a Secret Level with Volume Profile & VWAP

Hello everyone, it’s Dale here with a new video from the recent trade series. In this series, I always walk through a trade that I took last week and show you everything about it, which means the trade entry, the reasoning behind the trade entry, the reasoning behind the stop-loss, the take-profit placement, and how the trade went from start to finish. This way you can see the reality of trading and the way I trade. So let’s get to it.

What you see before you is the NinjaTrader 8 platform, and the chart is USD/CAD, a 30-minute chart. This is my favorite chart for intraday trading analysis. The level that I want to talk about was a short trade. It was resistance in here. Let me first talk about the reasoning behind the trade. I must say I really like the reason behind this trade because it is sort of invisible to the naked eye—you need Volume Profile to see this level. That’s the beauty of it.

So let me use the Volume Profile like this. The reason I’m using it on this area is because there was a strong sell-off, right? And when there is a trend or strong selling activity like this, I want to see how volumes were distributed here. In this case, what stood out was this significant volume cluster. A volume cluster in a trend like this means that sellers who were pushing the price downwards were adding to their short positions at this place where we see the cluster. What I like to trade is from the beginning of the volume cluster, which is here. This is where the level was, and then I just waited for a pullback and took a short from here. This was the reasoning behind the trade entry.

This volume cluster formed within a trend. This is a Volume Profile setup that I like to trade. It is called the trend setup because you trade it when there’s a trend like this. As you can see, you wouldn’t really be able to identify this level with the naked eye—you need the Volume Profile for that, which is kind of cool, isn’t it?

In addition to this Volume Profile setup, there was also a fair value gap. Let me highlight it. It was this whole area. This was a fair value gap, a concept from Smart Money trading, and I like to trade from the beginning of a fair value gap, which in this case was right here—also at the beginning of the volume cluster. That’s kind of cool because it adds confluence to the level.

Now, speaking of confluences, there was another reason why this level worked and why it was stronger—it was the first deviation of the weekly VWAP. That’s the gray line here, rather close to the level, and when the price is rotating like this, it tends to react to it. In fact, it did: the reaction here was exactly at the level, and then there was another reaction here. I wasn’t trading this second one. I was only trading the first reaction. I trade just the first reactions. But as you can see, the price reacted to the pip to the first deviation.

So we had a combo of three trading setups telling me that this was a strong level to go short from: the Volume Profile setup, the fair value gap, and the first deviation. And it doesn’t really matter that the first deviation was just a little bit above the level. I still consider it a confluence.

Now let’s talk about the stop-loss placement. The way I like to place my stop is behind a heavy volume zone. In this case, I considered this to be the heavy volume zone, and my stop was behind it. I placed it at the top of this candle, right here. The reason I like to place the stop behind a heavy volume zone is that a heavy volume zone represents a strong barrier the price shouldn’t go past. In this case, this whole area was the strong barrier, and my stop was behind it. So that’s the stop-loss placement.

What remains is the take-profit placement. I like to place my profit at the beginning of a heavy volume zone. So if you take a look here, the short was from here, and at this point I was looking for the best place to quit the trade. For that, I use Volume Profile. I used it like this because I wanted to see the volumes in this rotation, in the area before the price went towards my level. This was a significant volume zone, and I quit the trade when the price reached the beginning of that heavy volume zone. So the take-profit was here.

Another thing I considered was quitting the trade here at the VWAP. The price really likes to react to the VWAP—by the way, this is the weekly VWAP. But in this case, I wanted to be a little more careful and quit the trade earlier at the beginning of the heavy volume zone, because I was afraid that the price would react there. Another logical place to quit the trade would have been the VWAP. As you can see, eventually the price reached the VWAP and reacted there, but my take-profit was a little higher. I was more cautious.

So this is how the trade went from A to Z. By the way, I publish all these levels in the members area for our members to trade alongside me. They get those levels in advance. Let me show you. This is our members area, and the level we talked about—that’s USD/CAD right here. This was the level: short at 1.3857. That was the prediction. And here, this was the result.

If you want to join us, you are welcome to do so. Just visit my website at trader-dale.com. If you click “Trading Course and Tools” it will take you to this page. Scroll down and you can join us here by getting one of the educational and indicator packs. You can get them separately or scroll down a bit and get them all together—all four packs in one discounted combo.

That’s about it. I hope you liked the video. I’m looking forward to seeing you next time, and until then, happy trading.