Volume Profile Based Support & Resistance

[KeyToTheCastle 10]

I'd like to dedicate this thread to support & resistance zones that are based solely on volume. More specifically volume based profiles. These profiles are formed with market profile influences but use volume instead of time to frame value on different time frames. Market profile was a subject I came across early on in my trading career. Although it was when I first started reading about MP that it became obvious to me that tracking value in the market was very important it still took me a long time before I was able to organize the information in such a way that provided any sort of edge.

 

My trading methodology goes deeper then just blindly using these zones to place trades but the ability to accurately pin point these zones of value is one of the four legs that form the table or foundation of my trading technique.

 

For now I am posting an after the fact chart of today's ES action to show where my shorter time frame zones were located today. In the future I will post charts before hand showing where current zones are located and then we can see how the market reacts to them.

 

I use static zones that are formed from previous day's volume, that could be from yesterday or maybe from 3 weeks ago, as well as dynamic zones that develop as the day goes forward.

 

We can delve deeper into technique as we go along. I welcome all comments as we progress.

[KeyToTheCastle 10]

As I made that 1st post I noticed price currently reacting at a short term intra day resistance zone on the usd/jpy.

 

I use these zones on both long and short time frames on many different instruments.

 

On the usd/jpy you will also notice a zone from this morning that supported the market even after several attempts to break through. Sometimes the zones are wider then others.

[KeyToTheCastle 10]

Follow up to the usd/jpy zone: market has reacted to the resistance zone.

 

These zones are used for different purposes depending on the background condition of the market. Sometimes as an entry zone, sometimes a target zone to take partial profit, or maybe just as a line in the sand used to gauge the strength of the current auction.

 

At the very least we expect to see a reaction at these zones although quite frequently a zone can hold price up and be the transition spot for the beginning of a new auction in the opposite direction. Again...it's all relative to the longer time frame condition.

 

Next time we'll look at some more real time charts showing both shorter time frame as well as some longer time frame zones.

[KeyToTheCastle 10]

Here is a chart showing today's intraday zones on the ES. Zones 1 & 3 are based on previous days information. Zone 2 is based on todays action.

 

Not getting into technique as far as trading at these zones just yet but I did want to point them out ahead of time.

[ziebarf 10]

Interesting stuff, I have never really delved into market profile stuff. I take it the blue bars on the profile prints are the highest volume zone? So are you looking for those to cluster at the extremes of the profiles? I will attach a picture that might make my question clearer.

[KeyToTheCastle 10]

ES Update:

 

after catching price for 90 minutes zone 3 has been breached and we are now coming down to zone 4.

 

Zone 4 is an based on intraday volume as well but dates back to 7/20/10.

Edited August 19, 2010 by KeyToTheCastle

[KeyToTheCastle 10]

ES update:

 

since zone 3 was fully breached and no longer valid I remove it and can now add zone 5 which is a resistance zone formed off todays morning trade.

[KeyToTheCastle 10]

Interesting stuff, I have never really delved into market profile stuff. I take it the blue bars on the profile prints are the highest volume zone? So are you looking for those to cluster at the extremes of the profiles? I will attach a picture that might make my question clearer.

 

Yes, blue bars = poc (high volume). Where they cluster would definitely be an area of interest but you have to be cautious about starting to draw lines all over the place. Some zones are much more important then others and those zones are where I shade out the pricing in green.

[KeyToTheCastle 10]

ES update:

 

Zone 4 has supported price as the market has become range bound for almost 3 hours now. Zones 4 & 5 are the current zones in play. Trade em as you see em.

[KeyToTheCastle 10]

ES wrap up: after testing zone 5 price was rejected back down towards zone 4.

 

Today I touched on the idea of forming these zones on an intra day time frame. I also watch zones formed on a higher time frame . As stated earlier utilizing these zones is an integral part of my trading plan. What they do for me is to highlight areas where I am interested in doing business in the market. Maybe to initiate or add to a position or maybe to take some profit. They also serve as reference areas to gauge market strength or weakness.

 

One thing is for certain...they let you know where you are on the playing field of price.

[KeyToTheCastle 10]

Already quite busy so I don't imagine that I'll be able to post very often today but I did want to follow up with how zones 4 & 5 played out over night. Both zones were tested and continued to catch price well.

 

From here I want to start showing some examples of longer term catch zones and then perhaps we can see how powerful it is when we have zones lining up on both the short and long term views.

 

Monitoring the longer term background is an integral part of my trading plan and helps to filter out losing trades that are based solely on the shorter term foreground. Ultimately this leads to upgraded opportunities in the market.

 

Earlier on I mentioned that monitoring areas of value (support & resistance) as being one of the legs that help to form the base of my trading plan. Well monitoring value on both the back ground and the fore ground help to form 2 more of the 4 legs. Lets call them legs 1 & 2 and value will be leg 3.

 

Attached chart shows how catch zones 4 & 5 continued to hold up over night.

[ricky 10]

how do you figure out the zones? I can't seem to figure out where exactly the zone would go.

 

what books would you recommend reading on this subject?

[KeyToTheCastle 10]

how do you figure out the zones? I can't seem to figure out where exactly the zone would go.

 

what books would you recommend reading on this subject?

 

I apologize for temporarily abandoning this thread...this past week has been insanely busy and I just have not had the time to post charts here ahead of time like I wanted to. For those of you who pm'd me I hope that I have sufficiently answered your questions.

 

I plan on posting again and throwing up some charts of longer time frame situations in the next day or few.

[KeyToTheCastle 10]

I will try and post charts all throughout tomorrow...let's see how it goes.

 

The attached chart shows the 2 current catch zones on an intraday basis in ES...1 above the market and 1 below. Both of these zones have been in play since late morning and have held up into the overnight session (currently 2am EST)

 

First thing in the morning I will update them if need be.

Edited August 27, 2010 by KeyToTheCastle

[KeyToTheCastle 10]

GM traders!

The same 2 catch zones are still in effect having contained price through out the overnight session. I will update the zones when need be.

[KeyToTheCastle 10]

We just went through a period of some very trade-able volatility across the board right there.

 

Will update es momentarily....actively trading so as zones get breached there will obviously be a gap in time b4 I come back on here to update.

 

I also wanted to show a view of a currency pair I have been actively trading to the short side the past few days.....the usdcad. This screen shot depicts the zones as they stood b4 7am est. you can see zone 1 supported lows yesterday. IN that zone 1 we also had confluence from a support zone created on longer time frame charts.

 

then as price rebounded up overnight zone 2 was effective at catching price several times b4 price broke through and up to zone 3 a 1/2 hour ago.

 

After posting this chart I will also post an updated view of the usdcad.

[KeyToTheCastle 10]

Updated USDCAD zones. Creating, understanding, and using these zones to pinpoint value is step 1 of my trading plan. The first step for me is always to determine if a particular instrument is in an area in which I want to do business. These zones, on both intra day time frames and multi day time frames, alert me to those areas.

[KeyToTheCastle 10]

Zone 4 was breached, zone 1 from my post earlier contained price.

 

Important distinction in regard to how I use these zone: It's always relative to the back ground condition of the market. The zones are used as entry zones to either initiate or add to positions, used as target zones for exits, or just used as a line in the sand to monitor strength of the order flow in a particular area.

 

As noted earlier, I am playing the usdcad to the short side. In doing so I am entering trades in resistance zones and scaling out of profit at support zones. As long as the original back ground condition in order flow that got me into the trade is still in effect I am will continuously cycle portions of my position on and off , trading around a core position, until price eventually makes an extended run in my intended direction and heads toward deeper targets. Essentially I am scalping around a core position, in the direction of my core position, until the market breaks in my direction.

[KeyToTheCastle 10]

ES update. The low today in ES occurred as the high was being made in usdcad and the low was being made in the euro. Correlation across several markets is often a clue that a bigger swing can be at hand.

 

I was most active in the ES and usdcad today and observed the same order flow conditions setting up in both instruments as price was in areas of interest on both at the same time.

 

Plus on both instruments we had longer time frame areas of interest coming into play as well. The more conditions I have setting up the higher the probability and quality of the opportunity at hand.

[jedigeneral 10]

Thanks for the thread. I have been reading along but wanted to second Ricky's question. You are explaining what to do with these zones but... how do you pick them?

 

TIA

[KeyToTheCastle 10]

Thanks for the thread. I have been reading along but wanted to second Ricky's question. You are explaining what to do with these zones but... how do you pick them?

 

TIA

 

Hey Jedi..I will follow up on your post a little later...a lot harder time wise to keep up on posting then I realized. As far as Ricky he pm'd me then we wound up communicating further by skype. I will do my best to keep up here as best I can but I'm finding it hard to even post charts real time like I planned on. Will post ES update in a bit.

[KeyToTheCastle 10]

Current ES view of catch zones. We are already in the Current support zone but it is still a valid zone until completely breached. Remember...I use these zones in the direction of my bias. If I am bullish...I am using support zones to enter and resistance zones to scale out profit and vice versa. If I don't have a bias I'm use them to monitor market action. No shame in being flat...flat is a position too. There is always an opportunity setting up somewhere...no need to force anything in a market where I don't have a bias.

[KeyToTheCastle 10]

I know I dropped the ball on keeping up with posting charts but there just never seems to be enough hours in the day. Between trading and other business ventures I often find myself behind on my to - do list. I'm going to give it another shot. My goal is to post charts in a timely fashion, if not ahead of time, at least very close to real time. Maybe even morph into some kind of daily morning preview of the day. We'll see, but for now there are multiple opportunities setting up across different markets today. Here are a couple of which I am actively trading right now. I'll post now and comment more later. Both of these views are on my longer time frame....the "background view"

 

chart 1 usd/cad coming into a long catch zone

 

chart 2 aud/usd coming into a short catch zone

Edited December 2, 2010 by KeyToTheCastle