Most traders will pick either a volume profile or order flow trading as their core strategy. They believe that it’s a choice between the two.
Both approaches to the market have validity and edge, but they are both useful in different stages of trading.
Traders who just commit to one and ignore the other are missing the biggest opportunity in the markets.
In this article I’ll walk you through the differences between Volume Profile and Order Flow, and also show you how to use them together to build your trading edge and improve your execution.
What Is Volume Profile?
Volume profile is simply a visual representation of price and volume distribution over a period of time.
Traders use this information to decide where the value areas are, and which direction the market is likely to move and to which specific level.
Before we expand into the use of the volume profile, let’s see how it looks first.
From this image we can gather a lot of information for our daily analysis.
When using the Volume Profile, there are a few key levels to look at.
Point of Control (POC)
The point of control is the price level that had the most volume traded for the desired time period. It can be a one day profile, or just the US trading hours. In the example above, the POC is 7,397.50 on the ES futures. This is the level where most contracts traded in the session, and it will be a strong magnet, acting as support and resistance.
Value Area (VA)
The value area is defined as the area where 70% of the volume traded in a session. Your trading software will automatically calculate this, and often either shade it a different color or show up as separate lines. I prefer to use the separate lines approach.
The value area in this chart is between 7,390 and 7,406. This is where 70% of the volume traded for the day. It is considered like a support or resistance level.
Also, and most importantly, you want to use volume profile analysis over a series of days. The goal is to see if the Value Area is migrating (moving) higher or lower. This is a clear trend and sentiment confirmation.
This is an example of a bullish trend in the ES futures market.
Most importantly, notice how the value area is becoming smaller each consecutive day of price increases. This gives you a clue that while prices are moving higher, the trend is slowing down and starting to consolidate more. We could be in for a multi day consolidation and even a trend pullback.
Value Area High (VAH)
The value area high (VAH) is simply the top point of the 70% value area.
Value Area Low (VAL)
The value area low (VAL) is simply the bottom point of the 70% value area.
The issue with the volume profile is that it is backward looking. All of the information you see is based on already traded volume. This means buyers and sellers were matched, and the trade was completed.
The theory is that past levels of highly traded volume will work as a trade entry for your strategy. But that’s a big assumption.
That’s like driving your car by looking at the rear view mirror while going forward. That’s a crash waiting to happen.
While the volume profile looks like an amazing strategy at first, once you start trading and looking for areas to execute the reality sets in. You only see levels that worked on the volume profile, and you miss all the times it gives you false analysis until you actually trade the profile.
The Volume Profile is an amazing analysis tool for price structure, and to find key levels.
But it misses the most important part, the real time auction. The orders moving from intention to trading execution (which becomes volume). This is the clearest real-time trading strategy there is. We are reading the market BEFORE it becomes executed trading volume.
Let’s talk about order flow and the real-time auction process.
What Is Order Flow?
Before you can see volume on the chart, you can see the real time auctioning process between buyers and sellers.
You can see a real time negotiation process that dictates the market’s next move.
When you watch the flow of orders moving and entering the market, you are watching “order flow”. This process helps you find big buyers, where they are aggressive and most importantly WHEN they are in control. And when they are not.
What Order Flow is Measuring
We begin by scanning the order book (level 2, Depth of Market). We are looking for where the big buyers are in the book, with an attempt to predict where the market will move to.
With order flow we are looking for real-time aggression. How do the market orders trade with passive limit orders?
If the market orders are trading on the ask side of the market, the aggressor are the buyers. They have the momentum and strength, and are expected to continue until they get absorbed.
If the market orders are trading on the bid side of the market instead, the aggressors are the sellers. It’s a sell auction, and the downside is favored.
Market orders move the market. Limit orders provide the liquidity for the market orders to trade against.
Learning to read this order flow is a real-time approach of auction reading. This auction reading is our specialty in trading, and there are specific order flow patterns that give you the real trading execution signal at a level.
Key Concepts of Order Flow
Imbalances:
These occur when the market orders are multiple times more aggressive on one side of the auction. Imagine we had 20 contracts traded on the bid (market selling) on ES at 7397.00. And we had 500 contracts that traded on the offer (market buying) directly above.
This imbalance tells us that we had 25x more buy interest in the auction. This is a huge indication for who is currently in control, and also creates a very clear support level and trade entry timing. These imbalances are shown clearly on the footprint chart.
Footprint Chart:
I wrote a full blog post on the Complete Guide to Footprint Chart Trading.
Here is a look at an example of how the footprint chart found a key entry moment on the long side of the ES futures.
After market sellers got absorbed by the buy side, they realized they were stuck in the auction.
Stuck shorts near lows get out of their trade by buying at market as their buy stop loss gets triggered.
The imbalances on the footprint chart helped us find the perfect entry moment for the long. This is information that the Volume Profile chart can never show us.
This is the power of order flow trading. It’s auction reading in real-time. It’s not about finding levels and ideas, but qualifying your analysis and turning a trading idea into real execution with edge.
The Core Difference Between Volume Profile and Order Flow
When you are reading order flow you get information about what the market IS doing now, and where it’s likely to go. With a volume profile you’re looking at what has already happened and trying to guess if it will happen again.
Volume Profile is great at excavating information from past behavior.
Order flow is reading the room in real-time.
Volume Profile gives you the map, and order flow tells you where traffic is moving on the map right now.
Imagine setting your GPS to a destination far away, and it just shows you a big line to your route, but doesn’t tell you to avoid traffic jams or accidents. But it doesn’t tell you how to get there at all. It would be useless.
This is why it’s not a choice of which tool to use for your trading.
It’s not a decision.
It’s about integration and using BOTH tools at the right time in your trading strategy and approach.
Where Volume Profile Excels
I use the volume profile during my pre-market prep. It helps me identify key levels before the session opens. It helps me get a multi-day context on how the value has moved. It helps me decide if it will be a consolidation or expansion day, and what levels are at play.
The volume profile also defines structure. Where is price likely to find support, resistance and where is there a vacuum of volume?
I also have my volume profiles configured to be split into two sessions.
Session one is price action during the US trading session, commonly referred to as Regular Trading Hours (RTH). This is from 9:30AM EST to 4PM EST.
Session two is price action during the overnight session, commonly referred to as the Extended Trading Hours (ETH). This is from 6PM EST to 9:29:59AM EST the following day.
The split volume profile tells me how markets are behaving in high liquidity environments like the US session. And compare and contrast that to how overnight traders are positioning.
But that’s all Volume Profile is useful for. It’s a lot of value, but it tells you nothing about conviction at the levels of interest. And conviction and auction strength is the most important thing about a trading level when you are about to execute your plan.
Where Order Flow Excels
Order flow excels for trading execution. Finding the highest probability moment to enter, when to exit and how to trail based on auction strength.
It’s also useful for confirming or rejecting at Volume Profile levels, giving you insight on what the market is actually doing without having to guess. Or even worse, having to see it after the fact when you can’t do anything about it trading wise.
There is no better tool than order flow to see absorption of orders vs real trading aggression at levels. This is the difference between a level holding or breaking. The difference between your trade hitting profit, or being stopped out yet again.
Where the volume profile can give you the level, the order flow gives you the trigger when it’s time to take the shot.
The downside of order is that it can be noisy without structural context. It can be easy to overread short term.
Many traders that start using order flow at first will over use it. They finally see the benefit of auction reading and they get carried away. Watching every tick, staying stuck on one chart.
But it’s important to understand that order flow is like real estate, it’s all about location, location, location! Using order flow analysis and patterns at your key level is the integration that will benefit your trading strategy the most.
How They Work Together (The Real Edge)
This is where things come together to create a powerful trading strategy with real edge.
The volume profile will help you identify the market structure, trend direction and levels of interest.
Then as the price approaches your level, you switch to your order flow tools and time your entry when the market auction is in your favor.
Let’s go through a real life example, of how to qualify a trade using the combined edge of volume profile and order flow.
You can see on this day in the ES futures, the market had broken above 7410 for the first time ever. This was a clean break of the prior session value area high after a multi day consolidation.
The big question market profile and volume profile traders have at this point is will it hold and accept higher prices?
Most traders in this situation would just throw a market order to buy as soon as price breaks the 7408 and hope for the best.
And most traders in fact did, then ended up getting stopped out.
Take a look at this footprint chart and the order flow read.
You can see that traders following the volume profile saw the right setup, as it ended up working out eventually.
But because they didn’t have the framework to read the auction, they didn’t know how to time the right moment and just guessed at the long.
As soon as they got long, the price action started going up and the market dumped to run out the sell stops.
We can see this very clearly in the order flow footprint chart at step 2.
As soon as all the longs at the top start getting their stops run, this gives the entry liquidity to institutional order and they start buying on big volume in step 3.
Then as we run up, all the late longs that got stopped abandon their strategy completely. They say to themselves, well if the long didn’t work, let me get short. So traders now sell the top, convinced they got the right trade.
This strong selling in step 4, but a lack of price drop was the order flow I needed to get long. I put my limits out near the rotation lows and the trade got filled and hit profit pretty quickly.
That’s the power of combining volume profile and order flow.
You’re not making a decision as to what to use, you’re deciding to use them both at the right time of the trade process.
Volume Profile is for analysis and getting clean price structure levels. Order flow is taking advantage of the opportunity once the price reaches the level. It’s to help you read the auction, and time the market for the highest probability, lowest risk entry.
Common Mistakes Traders Make
There are some common mistakes that most traders make. It surprises me that these mistakes aren’t just for beginners, and many people use these tools for a long time without fully understanding them.
Here are the two biggest mistakes.
Using Volume Profile Levels as Entries
When you first learn about auction market theory and volume profiles, you feel like you’ve finally unlocked a big secret. You feel like you finally have a system that works. The more you test it, the more amazed you are at how often the market sees the same thing as you.
But then it comes to trading the levels, and it all falls apart.
The analysis was so easy, why am I getting stopped out all the time only to see the market move in my direction? Why am I chasing the price when I know I need to wait?
Volume profiles were never designed to be actionable trading signals. They were designed to give you an analysis framework. To consolidate price action in a meaningful and visual way.
Knowing the levels that will work in the market, makes you a great analyst.
But knowing when to get in, how to manage your trade, when the auction is in your favor and when the momentum is stalling out is what makes you a trader.
Many traders make the mistake of applying a volume profile and expecting to become good traders. The truth is, they’re designed to make you a great analyst.
Overtrading Order Flow Without Structural Context
The other big mistake is when traders first discover order flow, they have a big revelation moment yet again.
Oh my goodness, I can finally see the REAL market strength within a level. I can see inside of the candle charts like I never imagined.
The information is constantly changing, as the auction moves rapidly to find value. You see numbers flashing, boxes flickering, footprints forming.
It’s like a casino.
The colors, the sounds, the constant change of information hitting you rapidly makes you abandon all discipline.
You stop waiting for price to get to the right level, and you start chasing any setup you see on the order flow chart.
But remember that order flow is like real estate, it’s all about location, location location!
Where the patterns occur is more important than seeing the pattern occur.
This is why it’s often best to learn order flow from someone who can teach you by demonstrating the concepts in real time. It’s a real time art, and hard to learn by reading still images and text.
Always remember, that order flow is only useful at a key level. I look at other charts, or read up on market updates, or tweak my Sierra Chart setup, as I wait for my level to get triggered.
And only then do I turn my attention to order flow.
Which Should You Learn First?
You definitely want to start with an analysis framework. An approach to read the market, and to be able to see the story it is telling you.
For this reason I suggest starting with volume profile and price structure.
It is a professional tool for splitting the market into chunks of usable information. To find key levels, to know when it’s likely to move and when it’s likely to consolidate. Ultimately, the volume profile helps you pick the level that will contain the highest probability.
But remember, that being able to draw good levels that the market respects makes you an analyst. Don’t have high performance expectations of an analyst.
If they get the level right, they’ve done their job.
Once you become a good analyst, it’s time to take your analysis and make it actionable. It’s time to turn it into trading decisions. It’s time to start using order flow.
FAQ Section
Is order flow better than volume profile?
Order flow is better for trading decisions and entries and management. Volume profile is for identifying levels and creating analysis that the market respects. Each tool is best at a different time in your journey, but ultimately they don’t compete. They are in fact the optimal combination for developing trading edge and consistency.
Can you trade with just a volume profile?
You can get great analysis, and find levels that the market will end up respecting. But the tool is not used for trading execution as it ignores the behavior of real time market participants, how the auction is behaving and what institutional liquidity is doing. Trading is the decision to put risk on at the right time, volume profile doesn’t give you that information. It just gives you a level.
What platform do I need for order flow?
To chart order flow, you’ll need a dedicated trading software like Sierra Chart, or ATAS, or Quant Tower. TradingView is starting to introduce order flow, but their data is not “tick level data”, meaning it aggregates all trades to a one second level, which causes order flow to lose its real time impact.
Is footprint chart the same as order flow?
A footprint chart is one type of tool in order flow trading. But the depth of market, or price ladder, or Level 2, or DOM, is the visualization of orders of intent that match with market orders and turn to trades. There are multiple tools to help you read the real time auction and order flow, and they are in either the category of intention, or executed volume.
Conclusion
There you have it, we compared order flow and volume profile in depth.
Now you know the difference between the tools, and most importantly you know how they actually compliment each other as part of the trading process.
They don’t compete, they compliment.
This is why I use both of them heavily in my daily trading routine, and have been using them for over a decade.
When you use both tools, you’ll know exactly when you have to wait for your level, and exactly when it’s time to step on it and focus on execution.
This separation is the key to success, and these tools help you build a full trading plan with real edge.
