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What's better, Price alone, or Price + Volume Profiling?
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What's better, Price alone, or Price + Volume Profiling?

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What's better, Price alone, or Price + Volume Profiling?

I had a nice exchange with a fellow member here at BM regarding profiling and price action, and it has led me to think about this more and start this thread.

My question to all of you is: does volume profiling increase the effectiveness of trading based off of price action? The true answer, is of course, it depends, and "whatever works for you." I'm interested in what works for YOU as a trader.

I have found that price will "respond" to certain levels based on prior levels of support and resistance, identified by only the price chart. Also, I have found that sometimes price will do the same with prior areas of either high or low volume. I have followed some information from a well-known futures trader who significantly uses these levels of high and low volume based on profiling across large time frames, sometimes two years.

My question is, is one better than the other? Or maybe, can volume profiling add benefit to pure price action trading? I did lots of volume profiling over the last few weeks, but I feel that perhaps focusing on these levels caused me to be distracted from what price was telling me, even at the bar-to-bar level.

When I draw S/R levels based on the last few days using price alone (if current price is within that range), it seems to me that price tends to respect these levels, at least as much as or more than levels identified by volume profiling. What are your thoughts?

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I've looked at volume six ways to Sunday and have never found a correlation between volume and the success of a trade.

But that's me... I'm just sayin'....

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TMFT

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volume profiling

I think price gives you an idea of market direction but volume profiling certainly shows the strength of the move.

I generally consider low volume rise or fall as a "weak move", which can be retraced easily.
Similarly, a high volume yet slow-rise is considered as a very strong move which will be sustained for longer term without any substantial retracements. (In these kind of moves, anti-trend traders get caught badly)

In any case, something works on some day and something works some other day.

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I just use a volume pattern to identify pro's coming in the market, which will usually indicate the end of a trend or profit taking point. Also, they will usually get in a few minutes before a trend breaks.

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ThatManFromTexas View Post
I've looked at volume six ways to Sunday and have never found a correlation between volume and the success of a trade.

But that's me... I'm just sayin'....

Regards,
TMFT

Agree completely. I think the issue becomes it doesn't much matter how many participants there are that are willing to pay a certain price. It only matters how much they are willing to pay.
The few volume profile setups I liked were really nothing more than fast moves in price that you could see on the chart with just price anyway.

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ThatManFromTexas View Post
I've looked at volume six ways to Sunday and have never found a correlation between volume and the success of a trade.

But that's me... I'm just sayin'....

Regards,
TMFT

Well i think that's because the Markets are closed on Sunday.

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johnnycakes78704 View Post
I just use a volume pattern to identify pro's coming in the market, which will usually indicate the end of a trend or profit taking point. Also, they will usually get in a few minutes before a trend breaks.

Without asking you to reveal your method of doing this, may I ask how you identify "pros"?

The main method I've seen people use to do this is to look at the contract size in an order on the tape. Unfortunately, while sometimes you can see a large order, the way the tape shows the trades ever since late 2009 is such that you do not see the number of contracts traded by someone's market order--instead you see actual executions. In other words, a 500 contract market order may fill either one resting limit order of 500 contracts, or 500 separate resting limit orders for one contract each.

So, in my opinion (very humble as it may be), there is no way to see "pros" in the market with any readily available market data you may have access to, at least not in a reliable way. You can spot things pros tend to do (buy low, sell high), and look for things like exhaustion volume at the end of a move (the novice trader entering the trade late), however.

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josh View Post
Without asking you to reveal your method of doing this, may I ask how you identify "pros"?

The main method I've seen people use to do this is to look at the contract size in an order on the tape. Unfortunately, while sometimes you can see a large order, the way the tape shows the trades ever since late 2009 is such that you do not see the number of contracts traded by someone's market order--instead you see actual executions. In other words, a 500 contract market order may fill either one resting limit order of 500 contracts, or 500 separate resting limit orders for one contract each.

So, in my opinion (very humble as it may be), there is no way to see "pros" in the market with any readily available market data you may have access to, at least not in a reliable way. You can spot things pros tend to do (buy low, sell high), and look for things like exhaustion volume at the end of a move (the novice trader entering the trade late), however.

You ask all the best questions, Josh.

I find it interesting to watch what I call the 'take over' points in volume. Suppose that you are trade CL 5 min and that in the first 30 minutes, the largest volume on any candle was 9000 contract. You should be closely monitoring any move where volume is likely to exceed that (say it trades 7000 contracts in the first 3 minutes of a candle).

It is educational to watch not the trade size on tape, but the speed of increasing volume (volume acceleration). You will typically see this at the beginning of strong moves. Look for volume acceleration on reversal after a second test of extreme. Big traders coming in, SLs triggered, and new traders entering. Necessarily, volume will rapidly pick up.

No, there is no 'holy grail' way of using volume... but it is another piece of puzzle to be aware of. At the very least, one should stay away from low volume mid-range anticipatory types of trades, no matter how good they look.

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