Video Transcript:
Volume Profile and Order Flow are both fantastic trading tools that track the big trading institutions who move the markets. Each does it in its own way. Volume Profile is about the big picture, Order Flow is about the details. In this video, I want to show you how to combine Volume Profile and Order Flow to create a powerful trading strategy that takes the best of each trading approach the big picture from the Volume Profile and the details from the Order Flow. So let’s get to it.
What you see here is a typical example of how this strategy can look and how I use it. You can see two charts. On the left, it is a Volume Profile chart. On the right, there is an Order Flow chart. First, you always want to start with the big picture. That means with the Volume Profile. Here we have a 30-minute chart. I mostly use Volume Profile on 30-minute charts. You can obviously use it on different time frames like 15 minutes or hourly time frames. It doesn’t matter that much because we are talking about volumes. The volumes don’t change regardless of the time frame. That’s why it doesn’t really matter if we are looking at a 15-minute time frame or a 30-minute time frame, because the volumes don’t change.
On this 30-minute chart of the Japanese futures, you can see that I was looking at this specific area and that the Volume Profile showed a significant heavy volume zone in this rotation. That represents a strong resistance. The resistance is the whole heavy volume zone. It is not a specific level, because support and resistance are always zones. In this case, this was a resistance zone. When this resistance zone formed, I was waiting for a pullback. When the price reached that zone, I opened the Order Flow software.
You then switch to the Order Flow chart and look for confirmation that big players are entering the market and that your resistance is likely going to work. If you take a look at this Order Flow chart, roughly here we have that Volume Profile resistance zone. The price went into that zone. It didn’t really confirm the trade entry at first, but later what formed was this huge volume node with massive volumes on bid and massive volumes on ask. This is the confirmation. This confirmation is called absorption. Don’t worry if you don’t understand everything yet. I’m just showing you what you will learn throughout this video.
Here we have confirmation that big players are jumping in and entering their shorts, and that’s why you should go short from there as well. So first we started with Volume Profile that’s the big picture. Then, as price reached our resistance, we switched to Order Flow and looked for confirmation. That’s what I’m going to teach you today.
We start with Volume Profile and identify strong support and resistance zones. In this example, we have a 30-minute chart. If you look at the Volume Profile, what stands out is this heavy volume zone formed within this rotation. From that heavy volume zone, the price went upwards. Because the price went upwards, this heavy volume zone represents support. The whole heavy volume zone is a support zone. You wait for the pullback, and when it occurs in that support zone, you open the Order Flow chart and look for confirmation there.
The important thing is identifying the support zone using Volume Profile. Simply put, a heavy volume zone represents support or resistance zones because it shows activity of big players, and price likes to react there. One important thing I want to share is that you should only look for first tests. If you look at this volume cluster, it got tested here. This is the first test, and you want to trade the first test. The second test came when price reached the zone again, and that is a no-go. You don’t trade that. Only the first test.
Let me give you another example. In this case, we have a short trade scenario. The Volume Profile shows a heavy volume zone in this rotation. Heavy volume zones are almost always in rotations because big players accumulate their positions inside rotations. They have large capital and need to accumulate slowly without alerting the market. That’s why heavy volume zones are almost always in rotations.
In this case, the heavy volume zone represents resistance because from that zone the price went downwards. Sellers accumulated their short positions there and then pushed the price down. You draw that resistance, wait for a pullback, and when price reaches that resistance, it’s time for Order Flow confirmation.
Now let’s talk about Order Flow confirmation. The setups I’m going to show you Change in Delta and Absorption are only used when price reaches a strong support or resistance zone found using Volume Profile. You don’t use them randomly anywhere on the chart.
The first setup is Change in Delta. Delta is buyers minus sellers. On a footprint chart, aggressive buyers are on the right side (ask) and aggressive sellers are on the left side (bid). The difference between them is Delta. If Delta is positive, buyers were more aggressive. If Delta is negative, sellers were more aggressive.
Imagine you have a Volume Profile resistance and price reaches it. When price hits that zone and Delta turns negative, that’s your signal. Sellers are jumping in at resistance. You don’t need to read every number in every footprint. Just look at whether Delta turns positive or negative when price reaches your zone. But remember, this only matters inside a strong support or resistance zone.
For a long trade scenario, imagine price reaches a Volume Profile support. If Delta was negative and then suddenly turns strongly positive at that support, that’s your confirmation to go long. Strong aggressive buyers are stepping in.
The second setup is Absorption. Imagine price reaches a support. You then see unusually large volumes on both bid and ask in the same footprint. If the average volume is around 100 contracts and suddenly you see 500 or 1,000 contracts, that’s unusually large. Sellers are selling aggressively, but buyers are absorbing everything. Price stops moving down. Selling pressure is being absorbed. That’s your confirmation to go long.
For a short scenario at resistance, buying pressure is absorbed by sellers. You may see multiple stacked high-volume nodes, but they must appear in your predefined support or resistance zone.
The key rule is always the same: first the big picture with Volume Profile, then confirmation with Order Flow. Don’t look for Change in Delta or Absorption randomly. They only work in the right context.
If you want to learn more about Order Flow trading and get access to my custom-made Order Flow and Volume Profile tools, head over to trader-dale.com and check the trading courses and tools section. You can get the Volume Profile Pack and Order Flow Pack separately, or bundle them together with the VWAP Pack and Smart Money Pack for a discounted price.
Thanks again for watching, and I look forward to seeing you next time. Until then, happy trading.
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