Swing Trading Strategies: Buy Volume Profile Support
Most new traders look for indicators, signals, and gurus to follow – because it’s the path of least resistance. But this path of least resistance is also the path of most losses.
In today’s post, I will talk to you about a very effective way to swing trade without any indicators, signals or noise.
You will be focusing on reading volume and using volume accumulation to generate precise swing trading opportunities. Volume is the most effective tool in trading. Volume tools outweigh the influence of indicators for one simple reason. Volume leads to price and confirms a move. A move in either direction in the market accompanied by strong volume confirms the move. If it is on weak volume, that move will find exhaustion. This is because markets cannot go up with no buyers. The more buyers, the more it will move.
This swing trading strategy is taught in more detail in our day trader pro package here, as well as in the options and swing trader package here.
If you want to learn more about the best swing trading charts timeframes click here.
Swing Trading Strategies: What is a Volume Profile?
Before we can talk about the swing trading strategy, we need to dive deeper into the volume profile.
Most traders are used to watching volume at the bottom of their charts. This volume is time-based, meaning that volume is printed every x minutes that pass by.
The problem is that markets do not care about time. Markets care more about price and volume.
For this reason, most professional and successful traders use volume profiles in their regular analysis.
Volume profiles plot volume on the vertical scale and show you how much volume has been traded at each price. On Trading View, the volume profile study can be added on a cumulative basis to encompass whatever is shown on the chart. Or on an intraday basis such as is demonstrated below. To identify the volume profile for a single day of price action.
Here is a volume profile example below:
- The right side of the image begins on August 2nd to 12th, 2019
- The vertical volume profile shows the total shares traded at each price through the entire US trading session
- You can see that the level at which most volumes occurred for the session was at $201.55 – this is called the point of control (POC). This is on the left-hand side of the current day.
- There are high volume nodes around $201 to $201.70
These volume profiles can show you at which price a heavy volume of shares traded. On the right-hand side of the chart, right beside the price of the stock. You can see the full screen’s volume profile which encompasses the session within the chart. In this case from August 2nd to August 12th, 2019. All of the volumes are reflected on the large volume profile on the right-hand side. The POC is at $202.00 this is where a large amount of volume was traded. Below another massive volume node is at $196-$197.
Why is this important?
Because this will show you at which price large institutional traders are making trades and where there will be likely support and resistance in the near future. Also, this will show you where traders have open positions.
More on this in the next section.
Swing Trading Strategies: Buy Volume Profile Support – Entry Criteria
Now that you understand how volume profile works, we can dive right into the swing trading strategy.
This process will work for most stocks, futures and even currency markets (forex).
Here is how the swing trading strategy works:
- Identify the overall trend on the daily chart then trade in that direction
- Where is the next rally or support at Volume Profile peak (point of control)
- Sell the point of control in a rally (for short trend trades) and
- Buy the point of control in a sell-off (for long trend trades)
- Manage risk and move your stop loss to break even on total trade and eventually lock profit
Let’s put this strategy into action.
Here is a one hour chart of Apple stock, with the volume profile added:
- The hourly trend is very clearly bullish
- You will want to buy dips to enter into the upside
- The last point of control (POC) below the current price of $199.56 is at $196.90 (first red line above)
- buy this level to enter bullish, with a stop loss below the previous lows at $194.50 (Aug 8th)
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If you get stopped out on this trade, don’t worry, you can try to re-enter on the next volume profile point of control (POC) below. This, of course, is not advice. A trader should only do this if they have done the analysis for the trade and the trade meets all the criteria of their plan.
The general market trend should be analyzed and a top-down, technical multi-timeframe analysis should also be implemented. Price action is your friend, no matter the market you trade.
To avoid too many losses, you can pull up a Fibonacci retracement and only enter until the price is at or before a 61.8% retracement.
If a stock price retraces beyond that, the current trend is likely over and has reversed. Start trading the reverse side with this same strategy.
Swing Trading Strategies: Buy Volume Profile Support – Conclusion
This is one of my favorite swing trading strategies and is even one of my favorite tools for day trading.
When implementing volume profiles you are entering into trades with the professional money.
You are selling at prices where volume has confirmed them as supports or resistance. There is no way to know this information when using time-based volume charts.
I urge you to apply this technique to your favorite charts and strategies, and you’ll be impressed with how accurate it is.
Also, I would love to hear from you – how has this swing trading strategy worked for you? Let me know if you have any questions or comments.
Good luck and good trading.
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The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.