Video Transcript:
Hey everyone, it’s Dale here. Thanks so much for coming to the webinar. Today, we’ll be talking about intraday trading with Volume Profile and Order Flow. I’m going to show you this trading method, which I apply to currency markets as well as indices. You can apply it to any other market you like to trade, but my experience lies mainly with currencies and indices, especially the ES and the NQ. Today’s focus will be on trade entries. We won’t have time to cover position management, money management, or psychology because I want to teach you one thing properly so you feel confident and can start using it right away. All right, so today we’ll talk about trade entries with Volume Profile and Order Flow. We’ll combine two things: Volume Profile, which will tell us where to trade, and Order Flow, which will tell us when to trade – the timing. In the Volume Profile part, I’ll show you some basics, explain how to use Volume Profile to find good support and resistance zones, and teach you one concrete setup from A to Z. Then we’ll move to Order Flow. There, I’ll show you three setups to confirm or time your trade entry. These setups are called absorption, delta, and big orders.
A little bit about me before we get started. I’m Dale. I started trading in 2008. I trade mainly with Volume Profile, Order Flow, and VWAP, and I do both intraday and swing trading. Ten years ago, I started the website traderdale.com, where I teach traders how to trade the way I do. I’m also pretty active on YouTube and have over 1,300 videos there, so you’re very welcome to check them out. I’ve also written several books about trading: a Volume Profile book, an Order Flow book, a VWAP book, a stock-investing book, and a prop-trading book. Speaking of which, I have a little gift for you for attending the webinar. Even if you’re watching the recording, you can get the gift as well. You can choose any of the books shown here, and if you’re in the U.S., I’ll ship it to you for free. I’ll even cover the shipping. Go to my website, traderdale.com, and click this button in the menu at the top. It will take you to this page, where you can order your copy. There really isn’t any catch. Just order the book, enjoy it, and let me know how you like it.
All right, let’s move on. Today, we’ll talk about Volume Profile as the “where” and Order Flow as the “when.” Let me demonstrate what we’ll do using this little example. First, we want to find zones where we can trade, and for that, we’ll use Volume Profile. The left part of this picture shows the Volume Profile, and we’ll look for important zones where we can trade with Order Flow. Once we’ve identified those zones, we’ll move to the Order Flow part and look for confirmation of whether we should trade in those zones. That’s how we’re going to do it, so let’s start with some Volume Profile basics.
A Volume Profile is a histogram that shows volume at price. It can look, for example, like the Volume Profile shown here. The main idea behind Volume Profile is that we’re tracking large volumes and the big trading institutions – simply put, the big players who move and manipulate the markets. The most important areas in every Volume Profile are heavy-volume zones. A heavy-volume zone is simply an area where the histogram is wide. In this case, this would be the most important area in the Volume Profile because it is where the profile is widest. These heavy-volume zones are important because heavy volumes represent strong support and resistance zones. I use several Volume Profile strategies: different strategies for when the market is trending and a different strategy for when the market moves sideways. However, the core of all my Volume Profile strategies is that heavy volumes are strong support and resistance zones. The core of what I do is trade pullbacks to untested – and that’s important – untested heavy-volume zones.
If you look at this picture, I take this heavy-volume zone, mark it on a 30-minute chart, and wait for the pullback. I wait for the price to move away from that heavy-volume zone and then come back to it. When it reaches the heavy-volume zone, that’s where I enter my trade. In this case, it would be a short. That’s how I trade pullbacks to heavy-volume zones, always on a 30-minute time frame. One important thing: I trade the first test only. This is the first test – the first time the price hits that heavy-volume zone after moving away from it. I don’t trade second tests. That’s the core of what I do with Volume Profile and how I use it.
Now, I want to teach you one setup. I would say it’s my favorite setup, and you’ll be able to see it on the charts quite often. The setup is called the trend setup because you trade it when there is a trend. Step number one is to use a 30-minute time frame. Then, you look for a significant trend like this one. This is a strong uptrend. Next, you use Volume Profile to check the volume distribution within that trend. You want to see what the volumes looked like during the trend. The Volume Profile I’m using is my custom-made Flexible Volume Profile, which you can move around the chart to examine specific areas you’re interested in. That’s why it’s called a Flexible Volume Profile. I would say it’s better than daily profiles because daily profiles only show how volumes are distributed throughout a given day, while the Flexible Volume Profile allows you to look specifically at the trend area. That’s very important.
You check the volume distribution within the trend, and you want to see one or more significant volume clusters. In this case, there is a heavy-volume cluster here that clearly stands out, so that would be the one to trade from. Then, you trade pullbacks to it. You mark the heavy-volume cluster on your chart and wait for the pullback. When the price reaches that heavy-volume zone, that’s where you enter your trade. In this case, it would be a long because we’re looking at an uptrend. That’s why we’re trading long. You trade the pullback to the volume cluster, and that’s the entire trend setup.
The logic behind it is that this heavy-volume zone represents a place where buyers were active and adding to their long positions as the market moved upward. You can see that on the Volume Profile because heavy volume means big players were entering the market. Those are the big players in that volume cluster. When the price returns to the cluster, the big players may defend that area because it is important to them. It was important in the past, and it is likely to be important again. That’s why the price reacts: they defend that area. That’s the trend setup.
Now, let me show you a couple of examples. Here is a short-trade example. At first glance, you can identify a strong downtrend. You use the Volume Profile to examine that downtrend. You’re interested in significant volume zones that clearly stand out. When you look at the chart, you should be able to spot them right away. Don’t look for small volume clusters just so you have a trade. You want clusters that catch your eye immediately. In this case, it would be this volume cluster and this volume cluster – the two strongest clusters on the chart. You mark them and wait for pullbacks. You wait until the price moves away from a volume cluster and then returns to the level you marked. This is the first short. Then the price pulls back to the second volume cluster, creating the second short: short number one and short number two.
People often ask me how long a level remains valid and how long we wait before discarding it. In my experience, markets have a great memory. Even if a level is one week old, two weeks old, or even a month old, I still trade it. The reason is that markets have a great memory, and sometimes I feel that the older the level is, the better the reaction. I don’t have any hard data on this, and I haven’t properly tested whether it’s true, but I feel that old levels sometimes work like a charm. Based on my experience, I have no problem trading intraday levels that are up to a month old. If a level is older than that, it would need to be very strong for me to trade it. However, with levels like these, I would have no problem waiting a couple of weeks for the trade.
Let me give you one more example of the trend setup. Again, we’re looking at a downtrend, and ideally, you use the Flexible Volume Profile to examine only the volume within that trend. Here, we have three volume clusters that stand out: the first one, the second one, and the third one. Let’s start with the lowest one. The price moves away from the volume cluster, pulls back, hits the level, and you short from there. Easy. Now, let’s look at the second one. This is a volume cluster I would skip because it’s simply too wide. As you can see, the price eventually makes a nice reaction to it, but it would be difficult for me to place a short-trade entry there, so I would skip it. Now, let’s focus on the third one. Heavy volume formed in this little rotation. The price moved away and then pulled back here, so the short would come from this area. That is the first test of the volume formed here. If you’re confident that this is a trend and that it’s appropriate to use the trend setup, you can take the trade. If you’re not confident that it’s a strong downtrend because it may not be completely clear at this point, you can skip a trade like this. I would say the clearest trade of the three was this short. This would be the best trade from this example. That’s the trend setup.
All right, let’s move to the next part: Order Flow. This is where we talk about timing – the “when.” After you’ve identified a strong support or resistance zone with Volume Profile and the price returns to that zone, you want to time your trade entry with Order Flow. We’ll use one of the three setups I’ll show you in detail: absorption, delta, and big orders. If any one of these three setups confirms your trade entry, that’s when you pull the trigger.
Before we start with absorption, I want to explain the Order Flow visuals I’m using on the screen. You can see two visual settings. I’m using the colored layout on the left because the colors allow me to read the Order Flow more easily and quickly understand what’s happening. Red means sellers were in control in that part of the footprint. Green means buyers were in control. At first glance, I can tell which cell was dominated by buyers and which was dominated by sellers. Also, as you can see, heavier volumes are shown in darker shades. The shades help me understand where heavy-volume activity occurred and where it didn’t. For example, the colors are darker in this area, so I can immediately tell that heavy volume was traded there without reading every number. Order Flow shouldn’t be about reading every number, even though the chart is full of them. If you compare it with this other part of the chart, the red color is light, which means the volume wasn’t as heavy and was possibly less important. At first glance, I can tell who is in control and where the heavy volume is. That’s very important. The other layout doesn’t show you this. It only shows numbers, and unless you read all of them, it’s difficult to make sense of the chart. It takes time and isn’t very practical. You can obviously switch between the two, but the layout on the left is the one I prefer.
Now, let’s move to the absorption setup. I use all of these Order Flow confirmations on a five-minute footprint chart. What I want to see is the price reaching a strong support or resistance zone. Imagine that, in this case, we have a strong resistance zone here. We found this resistance using the Volume Profile trend setup I showed you. By the way, you can use any other setup you like to identify a strong support or resistance zone. If you don’t like using Volume Profile, you can use price action, Smart Money methods, VWAP, daily highs and lows, breakouts, or anything else that works for you. When the price reaches that zone, you switch to Order Flow and look for confirmation to enter your trade.
In this case, the price moved up and hit the resistance zone. Inside that resistance zone – and it’s important that it happens inside the zone – you want to see abnormally heavy volume appear at both the bid and the ask. The bid is the left side of the footprint, and the ask is the right side. You want to see heavy volume on both sides. The heavy volume can appear in one cell or in several adjacent cells, such as these three. You can see heavy volume at both the bid and the ask in all three cells. It could look like this, or it could be one huge, heavy-volume cell.
What does the price do when it reaches the resistance? It stops moving upward. It moves up, but inside the resistance zone, it stalls. That means pressure is being absorbed. In this case, buyers were pushing the price upward. The price reached the resistance zone, and buyers continued buying aggressively at the ask. At the same time, sellers started selling because the price had reached resistance. Sellers are selling, buyers are buying, the price stops, and heavy volume accumulates there. That’s why we see heavy volume at both the bid and the ask: both buyers and sellers are active. This confirms that sellers are entering, so you go short. That is your confirmation. In simple terms, you’re looking for heavy volume at both the bid and the ask at your support or resistance level. That’s absorption.
People often ask me what qualifies as abnormally heavy volume. There is a simple rule of thumb: look at the chart and assess the average volume in the cells. For example, in this footprint, you might see 42 contracts, 86, 139, 103, 79, and 137. Compare those numbers with what you see here, especially in this cell. This is an abnormally large volume by comparison. That’s how you can tell. My software also makes cells with heavier volume darker, so you can identify them by looking at the colors.
Different instruments and different trading sessions have different average volumes. I can’t simply tell you that 500 contracts always represents a big order because it depends on the session and the instrument. Did it form during the Asian session or during the European and U.S. session overlap? Five hundred contracts could be significant in Euro futures but not so significant in the ES. Different instruments and different sessions have different typical volumes. The best way to approach this is either to learn what is normal over time or compare the current volume with what you see elsewhere on the chart. Compare what was normal before with what you’re seeing now. If the current volume is several times larger, you’re looking at abnormally heavy volume, and that is your confirmation.
Let’s look at a couple of examples to make the absorption setup clear. Imagine that we have resistance here. It could be a Volume Profile resistance or any other resistance you found using your tools and setups. The price moves toward it, reaches the resistance, and what do we see? We see heavy volume in this cell and also in this cell. They’re very close to each other, almost adjacent. We also have heavy volume in this third cell. We can clearly tell that somebody big is entering the market here – not only the buyers pushing the price upward, but also sellers – because we see heavy volume at both the bid and the ask. This is what we want to see. This is absorption. Once you notice this unusually heavy volume, you pull the trigger.
Let me give you one more example. This is a long-trade example. Let’s draw a support here. Let’s say we used the trend setup to identify this support, and the price moved toward the level and hit it for the first time. Remember, we only trade the first test. Unusually heavy volume starts to appear in this cell and also in this cell. Compared with the volume elsewhere on the chart, it is much larger. This is unusually heavy volume, and you can see that buyers are entering and fighting the sellers. Sellers are pushing the price downward, but when the price hits the support, buyers start buying everything the sellers have to sell. That’s why the price stops moving downward. This is absorption: selling pressure is being absorbed. When you see this, you go long.
One more thing to point out is that the absorption – the heavy volume – really needs to appear inside the support or resistance zone. If you see a heavy-volume cell anywhere else on the chart, it doesn’t mean much. Unless it appears at a support or resistance zone, it’s just noise. Ignore it. It isn’t valid absorption. The setup is only valid if it forms within a support or resistance zone you have already identified. Absorption confirms that other market participants, including big players, also see your support or resistance zone and are trading it. They’re fighting over it. That’s why you want to pull the trigger: you want to follow the big players and what they’re doing. That’s why we use Volume Profile, Order Flow, and VWAP, which is also volume-based. I try to follow the big players because they move and manipulate the market.
Setup number two is delta. Delta is the difference between ask volume and bid volume. For example, if you take this footprint at the top, add up all the volume traded at the ask, and subtract all the volume traded at the bid, you get the delta. In this case, the delta is negative. Delta appears below the footprint. That’s how my software displays it, and I think this is fairly standard. Negative delta means aggressive sellers dominated within that footprint. Positive delta, such as 531 here, means aggressive buyers dominated. That is essentially what delta tells us.
This setup is about looking for a change in delta around support or resistance zones. Let me draw resistance here. When the price reaches that resistance, you want to see a change in delta. Because this is resistance, you want to see negative delta – aggressive sellers dominating. While the price is rising, delta is positive, which is normal because buyers are more aggressive. However, once the price reaches resistance, sellers enter aggressively. That’s when you pull the trigger. You can enter when the footprint closes. In this example, it would be a short from this area. You want to see a change in delta.
Let me show you a couple of examples. Imagine that we have strong support here and the price moves toward it. This is where the price hits the support for the first time. As the price drops, delta is negative, which is normal. Delta is still negative here, but then we get positive delta in this footprint. That means buyers are entering. They see the support, want to trade it, and begin to enter the market. That’s when you pull the trigger and go long. That’s your confirmation.
Again, you need to see the change in delta inside a support or resistance zone. If it happens anywhere else on the chart, it’s just noise. Ignore it. Many people become overwhelmed when they first start trading with Order Flow because they see all the numbers and details and begin looking for setups everywhere on the chart. That obviously leads to losses. You should only use Order Flow around support or resistance zones. Then it becomes extremely useful. Don’t chase trades or search for setups in random places on the chart. That doesn’t work, at least not for me.
Let’s look at one more delta example. I’ll draw support here, and the price reaches that support for the first time. Delta is still negative, but the next footprint has positive delta. One thing to notice is that this is a bearish footprint, and so is the next one. The price is moving down, but delta is positive. This is a divergence. It’s called a divergence because the price is moving down while delta is moving up, and the price often follows delta. This is what you want to see. You want a change in delta even though the price is still dropping. I actually like this even more: the price is dropping while delta is rising. That’s a divergence. The footprint closes, the delta has changed, and you enter your long trade. As you can see, aggressive buyers begin dominating and push the price upward. Delta remains positive all the way up. That’s the delta setup.
Now, let’s talk about the third setup used to confirm a trade: big orders. I use a layout like this. As you can see, most of the footprints contain zeros. That doesn’t mean nobody was trading. I’m using a filter that removes the noise and small orders and only shows the big orders. My software can do this, and I’m pretty sure NinjaTrader can do it as well. I set the software to show trades larger than a certain number of contracts.
As I said before, different markets have different typical volumes. For the ES, I’m currently using a minimum trade size of 300 contracts. That means the layout only shows individual trades larger than 300 contracts. These are single trades, not iceberg orders. If a single trade is larger than 300 contracts, it appears on the chart. For the NQ, the minimum trade size is 50 contracts. For Euro futures, it is 70 contracts. Typical volume changes over time. I remember using different values a few years ago, but these are the settings I’m currently using.
The idea is that the price reaches a strong support or resistance zone, and when it does, somebody big wants to trade it alongside you. A large trader sees that support or resistance and may be waiting there with a limit order or entering with a market order. We don’t know exactly, but we can see that somebody big entered a trade. The trade filter removes all the noise and only shows the big players and big orders.
Imagine that we have support here and the price reaches it for the first time. As the price moves toward it, a 500-contract trade appears here, but that doesn’t interest us because we want to see a big order inside the support zone. This order is not relevant. However, when the footprint shows this or this – whichever comes first – you enter the long trade because somebody big has just entered the market at your support zone. You go long from there.
It doesn’t matter whether the big order appears at the bid or the ask because it could be a market order or a limit order. You can’t really tell. It’s enough to see one massive order. Somebody big has entered, and if it occurs around your support or resistance zone, you enter the trade. This doesn’t work with iceberg orders because iceberg orders are split into multiple smaller orders, so we can’t identify the large order as a single trade. That’s what big players often do. However, if they trade with large single orders like these, we can track them. We can see that they are reacting to our support or resistance zone, and that gives us confirmation to enter the trade.
Let me give you a couple of examples to make the big-order setup clearer. Imagine that we have support here and the price moves toward it. Usually, I use five-minute charts for all these confirmations. However, with this type of filtered chart, I use both five-minute and 30-minute footprint charts. In this example, the price drops toward support. At first, we see nothing, but then the next footprint shows big orders at both the bid and the ask. It isn’t necessary to see them on both sides. One side is enough to enter the trade. Either the bid or the ask is sufficient. If you see a big order, pull the trigger.
Here is one more example. Imagine that we have a support zone here and the price moves toward it. We aren’t interested in this big order because it didn’t occur at our support. We also aren’t interested in this one because it happened randomly elsewhere on the chart. We do nothing and wait. When the price reaches our support zone and big orders appear, that becomes interesting. That’s when you pull the trigger. Again, it doesn’t matter whether the order appears at the bid or the ask. In this case, it appears on both sides, but one side would be enough to enter the trade because somebody big has just entered at the support. Follow that big player.
Let’s recap the entire process. First, start with Volume Profile to find the “where” – where to trade. The trend setup works like this: look for a significant trend and identify one or more significant volume clusters within that trend. Then mark the entire zone where the heavy volume was traded and wait for a pullback. The price first needs to move away from the heavy-volume zone and then return to it. When the price hits the zone for the first time, use Order Flow for the timing – the “when.” Look for any one of the three setups: absorption, delta, or big orders. Absorption means heavy volume at both the bid and the ask. Delta shows aggressive buyers versus aggressive sellers, and you need to see a change in delta. The big-orders setup uses a filtered chart that shows only large orders. If you see any one of these confirmations inside the zone, you enter the trade. If you see two or three at the same time, that’s even better, but one is enough. In this case, because we were looking at an uptrend, it was a long-trade scenario. You would enter long where the confirmation appeared.
Now, I want to show you one real example from A to Z. This is a trade from our members’ area that we traded with members of our trading course. We started on the Euro futures chart. This is a 30-minute chart, and we can see a downtrend. We used the Flexible Volume Profile to examine the downtrend and identify heavy-volume zones. There was one here and another here. I want to focus on the higher one, which I had already marked as resistance. The price moved away from it and then returned to test it for the first time.
At this point, you use Order Flow to see whether you get confirmation to enter a short. Let me switch to the next slide and show you what the footprint chart looked like when the price hit the resistance. This is the same resistance zone from the previous slide, only zoomed in so we can see the Order Flow details. Let’s start with the picture on the left. This is a five-minute bid-and-ask footprint chart. The price moves upward toward the resistance. When it reaches the resistance, you can see heavy volume at both the bid and the ask inside the zone. That is setup number one: absorption. The market is absorbing buying pressure. Buyers are pushing the price upward, but sellers are selling. The price stops, heavy volume is traded, and the buying pressure is absorbed. Once you see this, you can enter the trade.
There was also delta confirmation. Look at the deltas. While the price was rising, we had positive delta, as expected. Then something unusual happened: we got negative delta even though the candle was strongly bullish. Sellers were dominating within this candle, quite possibly in this upper area. The next footprint also showed negative delta. We can see that aggressive sellers were entering and dominating. That is confirmation from delta – setup number two.
Now, let’s move to the chart on the right and see what the filtered footprint showed when the price reached the resistance. At first, nothing happened, but the next footprint showed big orders. Somebody big had just entered at that resistance. That is confirmation from the big-order setup. In this case, it was a perfect trade because we had all three confirmations: absorption, delta, and a big order. As I said before, you don’t need to see all three. If you do, that’s a bingo, but if the level is strong, one good confirmation is enough for me. If I’m less certain about the level, I would prefer more confirmation – perhaps two or even all three. As you can see, after the price hit the resistance, there was a strong sell-off. It worked like a charm.
I also have a small extra tip for you about merging cells. This feature turns footprints that look messy and complex into something much easier to read. It’s simple. Go to the settings. My software calls this “tick aggregation,” while I think NinjaTrader calls it “merging cells.” If you set the value to 20, the software takes 20 cells and combines them into one, making the chart much easier to read and understand. Truth be told, I wouldn’t be able to look at the unmerged chart and quickly tell what’s happening. For example, a standard NQ chart often looks like this. It’s a mess, and it’s difficult to see what’s going on. When you merge the cells, the chart suddenly becomes much easier to read.
For Euro futures, I use tick aggregation of two, which means two cells are combined into one. I use the same value for the ES. For the NQ, which is much more volatile, I use a value of 10 to 20, meaning a much larger group of cells is combined into one. As an extra bonus, this makes the software much less demanding on your computer. Order Flow will run much faster because it has less data to process. I strongly encourage you to use this feature because Order Flow needs to be simple – simple to read and simple to understand. Don’t make things more complex than they need to be.
All right, guys. If you liked what I showed you today and want to learn more, visit my website, traderdale.com. There are tons of videos there. I also publish regular market analysis and articles. If you really want to dig deep, learn exactly what I do from A to Z, study all my trading strategies, and get access to my custom-made trading tools, then check out the trading courses and tools on my website.
This brings me to a special offer as a thank-you for staying until the end of the webinar. If you go to traderdale.com and click the “Trading Courses and Tools” button, it will take you to a page like this. I offer four packs: the Volume Profile Pack, Order Flow Pack, VWAP Pack, and Smart Money Pack. All these packs include my strategies. Each one contains a 10- to 15-hour video course explaining exactly how I use the strategies, including all the rules and everything you need to know from A to Z. They also include the software you need, whether it’s Volume Profile, Order Flow, or VWAP. By the way, the Order Flow course includes not only the Order Flow software but also the Volume Profile software, so you can use them together.
You can choose one of the individual courses, or you can take advantage of this special deal. You can get all four packs together in one massive bundle for $697. This is the lowest price I’ve ever offered for the bundle. If you’re interested, now is your chance. The offer will be valid until the end of the month. To see what our members say about the indicators, services, and courses, check out our reviews on Trustpilot or Forex Peace Army. There are hundreds of reviews, and we have a five-star rating on both sites. It seems that people like what we’re doing.
At this point, I’d like to answer the questions you posted in the chat. There are a lot of them, so I’ll create a separate video and answer every question there. Go to my YouTube channel using the address shown here, or simply search for Trader Dale on YouTube. Subscribe so you don’t miss the video. I’ll probably publish it next week and answer all the questions you asked during the webinar. If you have any other questions, contact me at contact@trader-dale.com. I’ll be happy to help, and I usually reply within 12 hours. All right, that’s about it. Let’s move on to the questions.
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