How to analyze Nifty using various types of volume profile: A thread 🧵 (1/n)
If you are new to volume profile and wish to know its basics, go through my earlier thread: https://t.co/WJUnWR8dZE In this thread, we will discuss about the basic types of trend following profiles and its significance for next day trading. (2/n)
Profile with value area at lower end of range and closing at lows: This is also called "b" shaped profile as it is shaped like the letter "b" (3/n)
In this kind of structure, price opens at one end and falls during the day. Value area at lower range indicates that highest volumes were traded in the lower end of the range. (4/n)
Here, where price closes is imp. If prices closes below POC or near lows, it indicates higher chances of downtrend continuation next day. At next day's open, look for short side trading opportunities as they will have a higher chances of success. (5/n)
Price closed below POC and profile is a "b" shaped structure. Next day, we saw a gap down opening and downtrend at open. (6/n)
Profile with value area at upper range and closing at highs: This is also called as "P" shaped profile as it is shaped like the letter "P". (7/n)
It indicates largest volumes traded at upper range of the day structure and closing above POC/near highs indicates high chance of trend continuation the next day. (8/n)
"P" shaped profile structure with closing above POC. Next day, we saw a positive opening and uptrending market. (9/n)
In such cases, focus on long trades as market has higher chances of moving higher. (10/n)
"b" shaped profile with close at highs (opp of b shape profile and close at lows): If we see a "b" shape profile with price closing at highs, it indicates that largest volumes are present at lows of the day and market is in control of longs at close. (11/n)
However, to trade next day, you would need to confirm the intent of the longs. If they are showing strength or not. For that, in case of gap up opening, play ORB on 15 mins or it is more ideal to wait for pullback to previous day value area and see price rejection. (12/n)
"b" shape profile with close at highs. Next day, we opened within previous day value area where longs defended their positions. Then, we saw a trend continuation move to the upside. (13/n)
If we had seen a breakdown of previous day value area low, that would have been a high probability short trade as previous day longs would have been forced to unwind their positions. (14/n)
"P" shaped profile with close at lows/below value area low (opp to P shaped profile with close at highs) This indicates sellers in control of the market at the closing of the day. (15/n)
Next day, if we see a gap down opening, trade ORB on short side or it is ideal to wait for pullback to prev day value area. At pullback, the intent of shorts in the market will be clear to a trader - If they are willing to show initiative to continue the move or not. (16/n)
"P" shaped profile with close at lows. Next day we opened at prev day VAH and price failed to breakout. If one were long, they should have exited when breakout failed and opened shorts. (17/n)
In abv example, re-test of prev day VAH and breakout confirmed that sellers were defending their shorts and are maintaining control. (18/n)
Most volume profile traders make the mistake of simply looking at profile shape and analyzing the markets. (19/n)
Understand that the context of the market is the ultimate king. Apart from profile shape, close of the day and open of next day is important in your analysis. (20/n)
Abv mentioned are a few of basics of volume profile structures and how to analyze it. If enough interest is shown, will add more to this thread. (21/n)
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Charts courtesy @gocharting
