OVERVIEW
In this lesson, we will be going deeper into volume by examining strategies and indicators that can help you create a thesis on whether buyers or sellers are gaining control of the market
• Virgin POC’s- finding areas of untested liquidity
• Time Segmented Volume- using volume as a mean reversion indicator
• Cumulative Volume Delta- using volume to show trend exhaustion or reversion
PRE-CLASS CHECKLIST
Do you understand these concepts?
We will be using 3 different charts for our analysis
LET’S REVIEW OUR PROFILE BASICS
The volume profile shows volume traded at each specific level by price
This allows us to visualize the auction as a histogram
The volume profile consists of three main areas
• Value area (70% of the total volume)
• Value area high (volume traded above value area)
• Value area low (volume traded below value area)
The point of control (POC) shows us the price level that the most amount of volume was traded
HIGH-VOLUME NODES AND LOW VOLUME NODES
Volume profiles show us price levels with heavy interest, as well as areas with low interest
Areas of high interest are referred to as high volume nodes (HVN)
• These areas have lots of action on both the buy and sell-side. Because these levels have the most liquidity price tends to gravitate towards them
Areas of low interest are referred to as low volume nodes (LVN)
• These are areas that have little interest for participation by buyers and sellers. We can assume price will accelerate through these levels.
You may hear HVN referred to as shelves, and LVN referred to as gaps
SHAPE REVIEW
There are 4 main shapes that volume profiles build
• D shape- consolidation, balanced distribution
• B shape- double distribution, HVN with POC is the strongest distribution
• b shape- trend day, sellers are in control OR early morning accumulation leads to rapid pump
• P shape- trend day, buyers are in control OR early morning distribution leads to rapid sell-off
NAKED/VIRGIN POC’S (NPOC/VPOC)
The Point of Control (POC) is the price at which most volume on both the buy and sell-side were transacted
We can simplify these as zones of liquidity, or decision points for the market
We refer to these untested zones as Virgin or Naked POC’s (VPOC/NPOC)
If we trade up into a VPOC and sellers are still active, we know this is an important level of supply. If price is able to push through we know there is more demand than supply at this level.
• Remember all price action is supply and demand, participants look for areas of liquidity to transact
Previous days POC’s are important pockets of liquidity, remember this is where both BUYERS and SELLERS found an acceptance of the price
When price action returns to these zones it tells us if buyers and or sellers are still interested in transacting at this price
Acceptance of these levels is imperative for continuation or rejection of trend
These untapped zones of liquidity generally stay valid for one or two tests of the zone, after that enough new volume has come in that it loses its strength.
REVIEW
Price generally retests previous zones of liquidity to confirm which participants are in control
We can use VPOC’s as areas of support, resistance, or as price targets
We can use these zones on any timeframe
Combining profiles from different time frames can give us a clearer map of where price needs to go to see continuation or rejection
TIME SEGMENTED VOLUME (TSV)
TSV measures the inflow and outflow by comparing both changes in volume and price
TSV is a LEADING indicator that smoothes volume distortion by smoothing via time internals
We know volume spikes at open and close, and falls around midday; TSV attempts to fix this problem
We use TSV to confirm there is significant volume behind the price action
TSV divergences are particularly strong signals
When TSV passes from below the 0 line to above the 0 line it is considered bullish
When TSV passes from above the 0 line to below the 0 line it is considered bearish
When TSV crosses over the moving average it signals abnormally high volume in that time period
We can use TSV on any timeframe
It is imperative to use other technical signals/analysis to confirm entries while using TSV
Script used: https://www.tradingview.com/script/th7z0hBm-Time-Segmented-Volume-with-divergence-and-Kumo-cloud-background/
WHY ARE TSV DIVERGENCES SO STRONG?
TSV divergences are exceptionally strong signals because they show a footprint of what the big players are doing
Bullish divergence is indicative of LARGE PARTICIPANTS accumulating while smaller sized orders sell into them
Bearish divergence is indicative of LARGE PARTICIPANTS distributing while smaller sized orders buy into them
CUMULATIVE VOLUME DELTA (CVD)
Cumulative Volume Delta measures the difference between volume traded on the ask (aggressive buys) and volume traded on the bid (aggressive sells)
Resting limit orders are considered passive, while market orders that jump the spread are considered aggressive
Using this logic and CVD we can see areas of absorption and exhaustion through divergence
CVD can be displayed as candlesticks or a histogram
We recommend using the candlesticks because it makes it much easier to see divergences and confirmations
Exhaustion can be identified by a higher high (lower low) of price while CVD makes a lower high (higher low)
Absorption can be identified by when price makes a higher low (lower high) and CVD makes a lower low (higher high)
Script used: https://www.tradingview.com/script/vB1T3EMp-Cumulative-Delta-Volume/
