Video Transcript:
What makes one trading level strong and another one weak? For me, one of the biggest differences is confluence. A Volume Profile setup can give you a good trading level, but when another independent setup points to the same price, I consider that level much stronger. And that’s exactly what I want to show you here. I’ll take my Volume Profile setup and combine it with two of my favorite confluences: Fair Value Gaps and Support/Resistance flips. I rarely take a trade without at least one additional confluence. So, let me show you how I look for these combinations and how they can help you filter out weaker trading levels.
A confluence is where multiple independent setups confirm the same price level. The more confluences, the stronger the level. Here, there’s a list of setups that I use, and I use those as confluences or combos. I use Fair Value Gaps from Smart Money Concepts. I use the Support/Resistance Flip setup. That’s a Price Action setup, a very old one. Then I use the Yearly Point of Control, and I also use VWAP and its first deviations. I want to focus on confluences from Fair Value Gaps and this Price Action setup called Support/Resistance Flip. Now, what I also should mention here is that I rarely take a trade if there is no additional confluence. I always look for at least one. So, let’s jump right into it and let me explain the confluences using a couple of examples.
So, what we see here is a trend setup. There is a trend, and in that trend, we see a significant volume cluster, this one. So, normally, we just mark the beginning of that heavy volume cluster, wait for a pullback, and go short from there. But since we are focusing on confluences now, we want more than just this one Volume Profile setup. We want more setups to confirm this. And what we have here is the Fair Value Gap, which is from Smart Money Concepts. The Fair Value Gap is in here. Okay, let me just delete this and let me draw it again. The Fair Value Gap is this whole zone. It is a bearish Fair Value Gap.
Just to explain this really quickly, a Fair Value Gap is a formation of three candles. For example, this one. One, two, three. And in a bearish scenario, there needs to be a gap between the low of the first candle and the high of the third candle. If there’s a gap between those, if they don’t overlap, then it’s called a Fair Value Gap. In a bearish scenario like this one, it’s a sign of aggressive sellers, right? And the way I like to trade this is that I like to trade from the beginning of the Fair Value Gap, which, in this case, is here. This is the beginning of the bearish Fair Value Gap. So, it’s a short from there.
So, that’s the Fair Value Gap. There’s also another setup that confirms this Volume Profile level. And the setup is called Support/Resistance Flip. It’s not my setup. It’s an old setup, but it works. I really love it when combined with Volume Profile. This is how it works. Take a look here. This is where the price reacted really strongly in the past. Let me mark this level on the chart because it was strong support. I’m saying that this is strong support because of that reaction here. When the price blew past the support, when the support got breached and the price started to move below it, that’s where that support turned into resistance, right? So, from here, it is resistance. That’s why it is called Support/Resistance Flip, okay? Because support got breached and it turned into resistance.
Now, take a look at it. What we have here is a heavy volume zone, with the beginning of the heavy volume zone being here. We have the Fair Value Gap, where the beginning of it is here as well. And we have that Support/Resistance Flip setup also pointing to the same level. So, we have a combo of three setups: a Volume Profile setup, a Fair Value Gap, and a Support/Resistance Flip. And this is exactly the confluence that I’m looking for, okay? So, three setups, three independent setups, are telling me that I should go short from here, like this. And that’s exactly how you trade the confluences. I always look for at least one.
Now, let me show you a couple more examples. Here we have a trend setup. This is a trend, and here is a significant volume cluster within the trend. Now, in addition to that, we also have a Fair Value Gap. In this case, we have a bullish Fair Value Gap. We have this candle. That’s the first candle. This is the second candle, and this is the third candle. And in a bullish scenario, or in a bullish Fair Value Gap, the high of the first candle and the low of the third candle should not overlap. If they don’t overlap, then it is a Fair Value Gap. And since this is a bullish Fair Value Gap, then it begins here. This is where I like to trade from.
So, we have the volume cluster, we have the Fair Value Gap, and also the Support/Resistance Flip. In this case, we have this sharp rejection of higher prices, telling us that this level was strong resistance in the past because of that sharp reaction here. When the price blew past that, that resistance turned into new support. And as you can see, everything aligns perfectly. Support/Resistance Flip setup, beginning of the Fair Value Gap, and beginning of that heavy volume zone. Well, not exactly. The beginning of the heavy volume zone is a little bit higher, but I still count it as a confluence. And if it’s like this, I prefer to trade not from the beginning of the heavy volume cluster, but from the beginning of the Fair Value Gap.
So, let me just delete all of this and show you where my trade entry would be. Exactly here. Because this is the beginning of the Fair Value Gap, right? So, this is the long trade entry. Boom. Here’s the reaction. Nice combo, isn’t it? Always look for those.
Now, here’s another one. We have a Volume Accumulation setup because we have a rotation with heavy volumes accumulated here. The price moves away from that rotation, makes a breakout, and shoots downwards, telling us that sellers were active here and telling us that we should look for shorts. So, wait for a pullback, and if you were trading just this Volume Profile setup, it would be a short from here. But we should talk about the confluences first.
What we have here is a Fair Value Gap, and this is a bearish Fair Value Gap. That means you should be looking for shorts from this level. This is where the bearish Fair Value Gap begins. Those are the candles. The Fair Value Gap is based on this one. That’s the first one. This is the second one, and here is the third one.
Now, we also have that Support/Resistance Flip in here, right? The price reacted here, and that means that it was strong support in the past. When the price blew past that support, it turned into resistance, right? So, all the setups are again pointing to this level. You know, in real trading, sometimes it will not be as clear. They might be a bit away from each other. But if it’s just a couple of pips, then it’s still good. I still count situations like those as confluences, okay? In this case, it aligns perfectly, pointing us to go short from here.
Now, let me show you one more combo or confluence. Here is a strong rejection of higher prices. You use the Volume Profile to look into the rejection, to see how the volumes are distributed there. And you want to identify something like this, a significant volume cluster. You trade from the beginning of it. That means waiting for a pullback and going short from there.
Now, the confluence here is a Fair Value Gap, and I haven’t told you yet, but I actually trade only the rejections that have Fair Value Gaps in them. So, if you take a look at this rejection, then there is the Fair Value Gap in here, and it begins at this level. So, we have the volume cluster beginning here, as well as the Fair Value Gap also beginning here. If they were a bit apart from each other, in most cases, I would trade from the beginning of the Fair Value Gap, not from the beginning of the volume cluster, but from the beginning of the Fair Value Gap. So, short from there.
So, if you want to improve the win rate of your rejection setup, only take the ones that include Fair Value Gaps in them. Like here, you want to see the heavy volumes and then the Fair Value Gap because this shows you the aggression, right? This aggression increases the chance that there’ll be aggressive sellers there.
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