Using Volume Profile Instead Of Support And Resistance
Here is another lesson(video is below) for you guys on volume profile. I was posting volume profile charts in a Dropbox folder that could be used for Trade Station. The volume profile levels had to be taken from Think or Swim then plotted on a Trade Station chart. I stopped creating these charts because it was taking too much of my time. I already write strategies, do a weekly outlook, a daily watch list, and an algo report for my subscribers. Instead of me doing the work, I am going to teach you how to do it on on your own.
What is volume profile?
Volume profile just shows you over a given data series where the most contracts have traded. It does this by divvying it up into three sections,
high value node
point of control
and low value node
On Think or Swim, this is an indicator that can be added to your chart. Remember this indicator is not available on Trade Station. All you have to do on Think or Swim is go to Studies -> Add study -> All Studies -> V-W -> Volume Profile. On the daily one-year chart and looking at the T note at market you see a high value node at 120’30.0, the point of control at 120’05.0 and the low value note out 118’16.5.
On the charts I would give you each weekend, I would write down each of level for the one year daily, the three year daily, and the twenty year daily, then put them on a Trade Station daily chart. I would color code the one year daily, the three year daily, and the twenty-year daily volume profile levels on the tradestation chart. This approach is more concrete and data driven rather than just drawing an arbitrary lines of support and resistance. Not to say support and resistance lines are bad, but volume profile is a more data driven technique. If you look at the chart below the price comes up to 134 several times. When price is rejected at the 134 level, the hypothesis is that price would fall to the high value node. Then if price is rejected at the high value node it falls to the low value node.
This gives you support, and resistance levels based on where the most contracts have traded over a certain time horizon, the one year, three year and twenty year. In terms of creating a strategy around volume profile, I never found it useful because you need to use techniques that give more information. If you create a quantitative strategy or use the technical analysis that I teach, you can add this in as a reference point.
If you’re interested, do more research.
There are tons of books about volume profile, market profile. That is how you really know this shit doesn’t work. If it did people wouldn’t necessarily shove it down other people’s throats. So, market profile, volume profile, all of that stuff is nice to know, but it is not going to tell you to buy or sell. If you’re trying to make money, you want something that helps guide your decision. It is better than drawing support and resistance, but again, bottom line you need more information.