Simplifying Volume Profile Part 1

Why it doesn’t need to be intimidating.

My goal with this series is to introduce you to some super basic and easy to incorporate volume profile and market profile concepts that I hope can enhance your existing trading style. It is my intent for this to be the “explain it like I’m 5” version as opposed to flashing some super complicated charts at you so that I look super sophisticated as a trader. 

Most traders are comfortable or proficient with basic technical analysis. Support and resistance, trend lines, technical patterns and indicators are reasonably straightforward. However, we’ve all stumbled across those charts that look like a completely foreign language. Maybe it looks something like this, and it leaves you wondering where the candles are.

There is serious utility to everything on this chart, but it really comes off as a bit much if it is the first time you’ve seen it all. Maybe you just got proficient with technical analysis, and the thought of figuring all this out seems too burdensome. I can’t blame you.

I would offer for your consideration that the addition of some basic Volume Profile and Market Profile concepts might significantly improve one’s trading and serve as a complement, not replacement, for one’s existing technical analysis skill set. At worst it can keep you out of trouble at times. 

For example: If you have ever traded a technical breakout or breakdown, only to watch price reverse and slam you in the face, a volume profile on your chart may have kept you from initiating the trade in that situation. If you’ve ever wondered why some breakouts fail while others do not, the answer is almost always plainly obvious on a volume profile in my experience. In fact, I am probably on the other side of those trades a vast majority of the time.

Here’s an example of a day (February 21,2024) where a lot of traders were “chopped up,” and ultimately missed the end of day move.

What’s visible in this first picture is just a naked 5-minute chart of ES for the day.

4973 was a technical support for that day so I’ve added it to the chart. Maybe it wasn’t a horrible day and you got long at one of these two arrows but were frustrated by the lack of continuation and didn’t maximize your profit (and missed the end of day move):

Maybe it was a terrible day because you took this breakdown short at 1pm. Price had fully tested support 3 times and partially tested it another, surely it was done for!

Maybe you were savvy and waited for the back test of broken support from below after it had been tested SIX times. Time for those puts to pay!

Or maybe you were bullish that day and you were looking for a failed breakdown of 4973 to get long.

All of these are readily explained from just having a volume profile on your chart for the day, and with the first and most basic volume profile concept that will require one sentence. I’ll give you that sentence now, and my next post will elaborate on this in a very straightforward and easy to understand way.

“Most all the time you should be a buyer below value and a seller above value.”

Thats it, that’s the sentence. You’ll see what I mean by “value” in the next post with one simple picture. I’ll add some real world examples to elaborate, but it will be quite uncomplicated.