Video Transcript:
Hey everyone, it’s Dale here. Welcome to this Trade of the Week video. In this video, I’d like to talk about two trades that are kind of linked together, and they are both on AUD/USD. So let me show you.
What you see before you is the NinjaTrader 8 platform with my custom-made Volume Profile and VWAP indicators. First, I want to talk about a short trade that I took from here, from this red line. The reasoning behind this short was a Volume Profile setup. Let me zoom out a bit so you can see what this level was based on.
It was based on this heavy volume cluster, which formed on AUD/USD during this sharp rejection of higher prices. When you see something like this a sharp rejection of higher prices with a significant heavy volume zone inside it then it shows a place where sellers were active. Sellers were adding to their short positions, rejecting the higher prices, and pushing the price downward. So this was a very important place where sellers started to jump in, and that’s why I was trading from there.
I was trading from the beginning of this heavy volume cluster, waiting for the pullback. When the price reached the beginning of that heavy volume zone, I went short from there.
So far, nothing too special. This is a setup that I’ve been trading for many years, so it’s kind of a standard thing for me. But the interesting thing here was the take-profit placement.
Here was the short, and then I was looking for the ideal place to take profit. What I usually do is use the Volume Profile like this, and I like to place my take-profit before the price reaches a heavy volume zone. In this case, this was the heavy volume zone, and this was my take-profit. I was simply afraid that the price would react to this heavy volume zone and reverse, which, as you can see, it did.
So I went short from here and took profit here at the beginning of the first barrier standing in the way. That’s how I place my take-profit.
It wasn’t just the heavy volume zone here. There was also a Fair Value Gap. See, there was one Fair Value Gap here and another one here. When Fair Value Gaps are next to each other like this, I consider them one big Fair Value Gap. In this case, it started exactly at this level. As you can also see, it aligned with the beginning of this heavy volume zone.
So Fair Value Gaps, Volume Profile, and also the first deviation of the weekly VWAP here all told me that this could be a support or in other words, a barrier and that the price might struggle to move past it. That’s why I exited the short there.
So that was the first trade the short.
What I did next was immediately enter a long trade from this same place. Right after taking profit on the short, I entered long. The reason was exactly what I just mentioned: heavy volume zone, Fair Value Gaps, and the first deviation of the weekly VWAP all pointed to this level. This was the beginning of the heavy volume zone, the beginning of the Fair Value Gap, and also the first deviation of the weekly VWAP. Everything aligned here.
So it wasn’t just a good place to exit the short it was also a strong support, and I wanted to trade that support. So immediately after taking profit, I entered long from this place.
As you can see, the price reacted beautifully, and the place where I exited the trade was this heavy volume zone. The logic is always the same: you want to exit your trade before the price reaches a barrier the first barrier standing in the way. In this case, the barrier was this heavy volume zone, and I exited the trade at the beginning of it just to be safe.
As you can see later, the price actually went a little higher and then reacted to that heavy volume zone. I wasn’t trading this heavy volume zone, though. I wasn’t very confident in that trade, so I didn’t take the short from there. Retrospectively, yes, it would have been another good reaction and another winner. But I didn’t take it.
I only took the short from here and then the long from here. Still, I’m proud of those trades since the market reacted very nicely to all those heavy volume clusters. I think I managed to get almost the maximum out of the first trade, which I exited here, and almost the maximum out of the second trade, which I exited here.
So yeah, I think this was a rather interesting scenario because it was a combination of two trades. I also think it nicely demonstrates how I work with take-profit placement.
The key lesson you might want to remember here is that you want to take your profit before the price reaches the first barrier standing in the way the barrier being a heavy volume zone.
Now, if you are interested in learning more about Volume Profile trading, then I recommend heading to my website, trader-dale.com. If you want to enroll in one of my trading courses, you can do so there.
Thanks for watching the video, and I’ll be looking forward to seeing you next time. Until then, happy trading.
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