Day Trading Volume Induced Setups: Point of Control


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Video Transcription:

Hello, traders. Welcome to the Pro Trading Course and the eighth module Professional FX and CFD Trading.

In this lesson, we are going to learn how to day trade volume in two setups with, of course, a volume indicator and the point of control of the previous session. Now, this is very important. If you wanna trade like a professional either in the Forex market or the futures/CFD markets, you have to learn how to read volume. So we’re going to go to the charts, and right here, you can see that we are looking at June contracts on the crude oil. And, well, we are going to look at this part of the chart, this big move to the upside.

Volume Induced Setups-Point of Control1

Now, you can actually use…well, don’t use, but you can actually plug the volumes on your MT4 platform. Or if you’re using TradeStation or if you’re using NinjaTrader or Thinkorswim, you can plug in the volumes. But these volumes mean absolutely nothing if you don’t know how…well, if you don’t know what you’re doing or how to read them.

What we are going to look is this part of the chart. How was it possible? Or actually how could have we gone long right here using volume? So we’re going to go to a chart that I’ve set up with the Better Volume Indicator and, of course, the market profile.

Volume Induced Setups-Point of Control

First of all, we are going to look at the market profile and then we’re going to go and look at the volume indicator, which gave an excellent entry on this setup for about 154 ticks, well, exactly 154 ticks.

Now, first of all, point of control, points of control are the zones where we have the most volume in the past session. Now, you can see the histogram right here, and what it represents is the most traded contracts around the 40.06. And the 40.06 is actually the point of control or the price ladder that had the most volume in the previous session. If we go back one session, you can see that the histogram, or the biggest part of the histogram is right here at the top at the 41.60 zone. If we go back another session, we have 36.82 zone as point of control, okay?

Now, this is very important because this is where we are going to be finding, or this is where we are going to find the most volume in the actual session. Now, we don’t know if this volume is our buyers or sellers or if this volume is actually sellers closing their short positions from this high. And if we don’t know that, we actually are trading volume blindly, okay?

Volume Induced Setups-Point of Control2

We know that there’s a lot of volume here just by looking at the…well, the candlesticks and, of course, by looking at the point of control on this session. Now that we know how to read the point of control on our market profile, we’re going to go to the volume indicator. First of all, you need to know how to read it. The light blue bars are neutral volume or volume that has no buying or selling pressure whatsoever. It’s just normal volume. The big red bar is climax high. This means that buyers are coming into the market.

And you can see that climax high or climax high bars are always going to be at the bottom of a move. and right here at the bottom of a move. And if you get climax low, this means that sellers are coming in to the market, all right? This is the two first bar that you need to understand with this indicator. Then you have to go and look at the climax trend and the climax high trend. When you have trend bars, which are the green and the pink ones, this means that, first of all, this means that smart money or professional traders are, well, coming in and hitting the beat or hitting the ass.

This mean that, for example, if we go to this example right here…let me grab a vertical bar and let me show you this trend bar. We have a trend bar right here. And you can see that we have a very, well, a very tight range that price is trading in. This is telling us that professional traders are buying into non-professional or amateur sellers right here, okay? Non-professional sellers or non-professional traders are going to try to get in on this, move to the downside around these levels, okay?

You can see that the volume goes higher here. So these guys or these amateur traders are going to sell on the downside or at the bottom of this move. And here is where professionals are going to start buying into those sells orders. And as you can see…well, the price starts to trade in a very tight range. This is why it’s turning. And then it moves to the upside. This is one of the things that you need to understand when you are looking at volume, okay?

Now, and another thing is trend high, and this appears at the end of a move, okay? You can see right here that high trend bars are appearing and the price is stuck at the 42.70 zone. Now, this is how we’re going to read volume. First of all, price is located right here at the time, okay?

Volume Induced Setups-Point of Control3

We are looking to see if we can go long. And of course, we have the point of control. We have the weaks on the candlesticks, but we want to see some actual volume coming into the market. And right here, you can see that we have a climax high bar just before price starts to move up.

So first of all, and we are only looking at volume here and the high volume zones or points of control. We are not using any indicator at all. Of course, you can use this with what you have learned so far on this course. And this is why I didn’t want to use, let’s say, highs and lows, weekly highs and lows, daily highs and lows, pivot points, Fibonacci, etc., because the chart was going to be too crowded.

So, we are only going to look at volume right here, and you are going to use it in your trading system with the other concepts that you have learned on this course. Well, let me just zoom in a little bit on the chart so you can see what happened here. We have neutral volume and low volume right here at this zone. Then we have a surge in buying power. We have a climax high bar. When we get a climax high bar, we decide to go long with…right here. So, this is where we go long and the stops below the previous lows or below the weaks.

Volume Induced Setups-Point of Control4

So we have right here a 67 tick risk, and we are going to take profit at the next point of control, all right? And the next point of control is at exactly 127 ticks. So this is almost a 1:2 risk-to-reward ratio which is awesome. And as you can see at the next bar or the next candlesticks has a lot of buyers coming in, okay? But by using the volume as our indicator or as our setup, we were able to go long before all the buyers came into the market, and we got an even better risk-to-reward ratio than all of them.

So let recapitulate on what we’re going to do here. First of all, we are going to look at the market profiles and look at points of control, and when price gets to these points of control, we are going to decide whether to go long or to go short.

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