Video Transcript:
Hello everyone, it’s Dale here. In this video, I’ll show you how to trade the point of control. You know, I’ve been trading with volume profile for over a decade, and if you are a beginner trader starting with volume profile, then the number one advice I would give you would be to start with trading the point of control. The reason is that the point of control is the most important place on the volume profile, so today I’m going to show you how to go about trading it. The point of control is the most important place on any chart. The reason for that is that through volume profile you basically track the big trading institutions, right, the big guys, the guys who move and manipulate the markets, right, and the point of control is the place where the heaviest volumes were traded. This is basically the place where the big trading institutions were most active, where they placed most of their trades, right? So that’s the most important place on the chart, and as you guys probably know, institutions move the markets, and if you guys know where they are positioned, then I believe that you are ahead of 99% of retail traders.
It’s kind of interesting because professional traders, so many of them, almost the majority of them I would say, are using volume profile at least as some addition to their trading strategy. Institutional traders also use volume profile. This is a standard tool of a professional trader. But if you look at retail traders, not so many of them actually use volume profile. So what I’m trying to say is that even if you just place the volume profile on your chart, if you use simple daily profiles and you just look at where the point of control is, then if you do just this, you’ll still be ahead of most retail traders.
Now here is a guide on how exactly to trade the point of control. The first step is to identify the point of control. That’s easy. That’s where the volume profile is the widest, right? So it’s this level. This is the point of control. Then you want to wait for the price to move away from the point of control. Let’s say that it goes up, and then you wait for a pullback. This is the pullback. Then you enter the trade at the first touch. That means you go long from here. You also want to trade only the first test. That’s at least how I trade this. I only trade the first test because, in my opinion and experience, they have a higher probability of a successful reaction.
The short trade scenario would be again that you mark the point of control, and if the price goes down from the point of control, you wait for the pullback, and when the price hits the point of control, you go short. This is the short trade scenario. Now what I actually do, and what I currently prefer, is an alternative method. It’s very, very similar, only you don’t place the trade entry at the point of control, but at the beginning of the volume zone. Let me show you, because the way I look at it is that the support or resistance is not just the point of control line, but it’s the whole heavy volume zone where the point of control is. So in this case, this would be the whole support or resistance zone. Let me do a little drawing here. This is the whole zone, right? Support or resistance zone, not just the point of control, but the volumes around it too.
So if the price goes up from there and makes a pullback, then I don’t actually place my trade at the point of control line, but I place my trade at the beginning of that heavy volume zone, which is here. This is my long trade entry at this place. The reason is that I started to notice that I was missing many trades when I was trading from the point of control exactly at that level. I was missing a lot of trades. Many times, the price just reacted a little bit sooner. So I started to place the entry level at the beginning of that heavy volume zone, and my results improved a lot. This is a little tweak to that strategy that I’m currently using, and it works nicely for me.
So this is the long trade scenario. The short trade scenario would be if the price went down from that point of control, made a pullback, then the short would be from here, from the lower border of that heavy volume zone. That would be the short.
All right, let’s get to some examples. First, take a look at this volume profile. It has the point of control in here, so let me draw a line there at the point of control. What you do is you wait for the price to move away from that point of control. In this case, it goes downwards. That means sellers are in control. So it was sellers who were active in here, accumulating their short positions here. Then those sellers pushed the price downwards. Currently, we have the information that at the point of control there are strong sellers. So we wait for the pullback. When the price hits the point of control for the first time, you hit the short, and that’s it.
There’s also one more here. Take a look at this profile. It has the point of control right here. The price moves away from the point of control, makes a pullback to it, and this is where you enter short. This is a short trade scenario. Now here we have a long trade scenario. Take a look at this daily volume profile. The point of control is right here. You draw the line, and you need to see the price move away from the point of control, make a pullback to it, and when it hits your level, then you go long from there. All right, so that’s the long trade scenario. From here, you go long.
Now in this example, take a look at this volume profile right here. The point of control is here. Let me show you something. If you are trading from the point of control like this, then this would be the pullback, and you’d be looking to go long from here. But as you can see, the price missed that. This is actually what was happening to me so often, and that’s why I started to trade from the beginning of the heavy volume zone. The way I trade this is that I place the level a little bit higher, to the beginning of that heavy volume zone, which would be somewhere in here, and actually go long from this place. As you can see, the price hit that level and immediately went up. So the beginning of a heavy volume zone did the trick.
All right. Now this is the same chart, only zoomed out a bit, and I want you to take a look at this profile. It has the point of control right here, and if I extend the point of control like this, then you can see that after the pullback, this would be where I would be looking for a long. But the price just missed that. It would be a missed trading opportunity. At that point, I would just discard the level. But as you now know, the way I trade this is that I place the level at the beginning of a heavy volume zone. So it would be somewhere in here, because this would be the area where the heaviest volumes were traded. I would place my entry somewhere in here, and it would be a winner. This is exactly why I’ve altered the strategy a bit, so I don’t miss trades like these.
All right, let me now show you a couple of trades to demonstrate how we trade the point of control. This is a recent trade we took on the ENQ. Take a look at this profile here. The point of control was right here, and our level where we went long from was this line. The market opened with a gap, then the price went up from that point of control and returned back. It was rather quick, and from there it reacted. We went long here, and the price went up. The stop-loss placement, according to the rules which I showed you, should be in here, in this low-volume area. But what I did instead was that I placed it a little bit lower because I wanted the trade to breathe, and I placed it below this low. So I placed the stop in here.
Regarding the take profit, if you look at this volume profile, this was the point of control, the place where the heaviest volumes were traded, and this was where I took the take profit. I didn’t want to risk that the price would react to the point of control and go downwards again. That’s why the take profit was in here. As you can see, this is more or less a risk-reward ratio one trade. My rule for this is that I want to trade at least with a risk-reward ratio of one. That’s the minimum. So this was a risk-reward ratio one trade, and this is how it went.
Let me show you one more. This is a trade which I took recently on USD/JPY. This is a 30-minute chart with daily profiles. If you look at this profile, you can see a point of control that stands out very nicely. This is the point of control. Again, I like to trade from the beginning of that heavy volume zone where the point of control was formed. So it was this level. The price moved away from that point of control, made a pullback, and this is where the price hit that level. At the first touch, this is where I went short. The stop-loss for this trade was in a low-volume area, right here.
The take profit was based on a heavy volume zone standing in the way, and it was this heavy volume zone. That’s why the take profit was in here. It was a trade with a positive risk-to-reward ratio, so it was quite a good trade.
Okay, last one, last example. This is USD/CAD. Take a look at this profile here. This is where the heaviest volumes and the point of control were. I was trading from the beginning of that heavy volume zone, so this was my trade entry. I went short from there. My stop was in here, and if I extend this line, you can see that it was behind this heavy volume zone, behind this barrier. Regarding the take profit, I didn’t have a heavy volume zone standing in the way, so I was looking for some different barrier that would stand in the way of this trade. There was a weekly VWAP here, that’s the blue line, so I exited the trade when the price hit the weekly VWAP.
By the way, VWAP is also a good place for taking profits like this, but that’s another topic for another video. This is how the trade went, and this is where I took the profit. If I only had the patience, I would actually be able to exit the trade before it hit the first heavy volume barrier. The price actually reached this place, so it would have been an insanely nice trade if I managed to hold it that long. But I’m not like that. I probably wouldn’t be able to hold that trade that long, so that’s why I was searching for a closer place to exit the trade, and it was the VWAP. If I had the patience, I would follow the rules and just exit the trade when it hit the heavy volume zone here, but for me, that would probably be just too much to handle.
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