Volume Profile Trading

Regular volume shows HOW MUCH was traded over TIME (bars below price). Volume Profile shows WHERE volume occurred at each PRICE level (horizontal histogram). It reveals price levels of interest rather than just total activity.

For swing trading, use 20-day composite profiles for major levels. For day trading, use session profiles. For TSX stocks with lower volume, longer periods (20-50 days) create clearer profiles.

High volume levels (HVNs) are where the market found acceptance - buyers and sellers agreed on value. Low volume levels (LVNs) are where price moved through quickly without acceptance - the market rejected those prices.

Volume Profile works best on liquid stocks with adequate trading volume. On low-volume stocks, profiles are sparse and unclear. Stick to TSX 60 stocks or high-volume Canadian names.

The Point of Control (POC) is the most important level - it's where the most volume traded and represents fair value. Price tends to return to the POC and it acts as strong support/resistance.

Look at prior sessions' POC levels. If price has not returned to touch a prior POC since it was established, it's 'naked' or 'virgin.' Mark these levels - they often act as magnets for future price movement.

P-shape (volume at top) = bullish accumulation. B-shape (volume at bottom) = bearish distribution. D-shape (balanced) = neutral/ranging. The shape reveals the underlying market sentiment during that period.

In uptrends, use VAL and POC as buy levels (support). In downtrends, use VAH and POC as sell levels (resistance). This gives you volume-confirmed entry points that align with the trend.

Use composite profiles (10-20+ days) for identifying major levels for swing trading. Use session profiles for intraday/day trading levels. Best approach: composite for structure, session for timing.

LVNs have little volume, so price tends to accelerate through them. Once an LVN breaks, expect momentum until price reaches the next HVN. LVNs act as 'fast zones' rather than support/resistance.

Watch the developing POC and VA throughout the session. Rising POC = bullish intraday bias. Stable POC = ranging. Trade rotations between developing VAL and VAH, and breakouts when price leaves developing VA with momentum.

Auction theory views markets as constantly seeking fair value through auctions. Balancing = trading within VA (fair value found). Imbalancing = breaking out of VA (seeking new value). Rebalancing = returning to VA (trend exhaustion). Volume Profile visualizes this auction process.

Buy calls at VAL in uptrend; buy puts at VAH in downtrend. Sell iron condors with wings beyond VAH/VAL in ranging markets. Buy straddles at LVNs expecting acceleration. Use HVNs for credit spread strikes (put credit below HVN support).

Calculate VAH, VAL, and POC programmatically using tick or bar data with volume. Test entries at VA boundaries with trend filter. Challenge: VP is visual and discretionary elements are hard to code. Focus on objective rules for mechanical backtesting.

Single prints (Market Profile) are prices visited only once - similar to LVNs. Poor highs/lows lack excess (tails) indicating incomplete auction. The market often returns to fill single prints and poor highs/lows.