Trading with the Volume Profile | Technically Speaking: Advanced Charting

testing [Music] [Music] hey everybody it is good to be here this is brent in for pat mullally today i assume he will be back next week for his regularly scheduled spot but um today we're going to be talking about technical analysis obviously as the the class states but we're going to be focusing on volume and a particular volume indicator today so we'll be doing that coming up next before we get too far into this let me just mention mr michael keeley is in chat with me today i appreciate his help and um and you can follow either of us on twitter my twitter handle is on the screen at b moore's underscore tda michael's twitter handle is at m keely underscore tda so uh let me just mention though options are not suitable for all investors is a special risk inherent to options trading may expose investors to potentially rapid and substantial losses um training let's see well this webcast discusses technical analysis certainly that's the focus of this webcast other approaches including fundamental analysis may assert very different views in order to demonstrate the functionality of the platform we need to use actual symbols however td ameritrade does not make any recommendations or determine the suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility past performance of any security or strategy does not guarantee future results or success and remember stop loss orders do not guarantee an execution at or near the activation price once activated to compete with other incoming market orders okay so what are we talking about today today i do want to go through a market review and do a little technical analysis on the market and i want to talk about volume generally but specifically i want to focus on an indicator that you may or may not be as familiar with and that's called the volume profile it's found on the thinkorswim platform which is what we'll be looking at today and talk about how you may be able to use that volume profile in your trading and then actually look at a practice trade there so that's the goal here today let's start us off though and look at some things on the market i'm going to start us off with large cap stocks and let me get out my little drawing tool here because i just want to orient your cell you orient you to what i have on the screen because i'll be looking at a lot of this as we go on in the day i'll probably keep these on the the screen i have a 20-day moving average that's the red line right here okay and you can if you if you're ever looking at an instructor's screen and you're going what's that moving average on there if you have good eyesight you can just look kind of at the top of the screen and look right up there and if it's red here it corresponds the red lettering there that's what we got i have a 20 day moving average on here it's a daily data so it's 20 days and the 50 day which is the green line there okay so large caps we have a pretty nice trend there going on on this and you can see i drew a channel line sometimes channel lines are very helpful particularly on for shorter term um or if the moving average is not working in this case the moving average actually is acted as pretty good support here that is the 50-day moving average you can see we've bounced off at roughly in these various areas there not exactly though and that's not how that's not how it works it's never exact it seems but i drew the channel line and we have a midpoint of the channel line right here and that is acted as a resistance of light before this was probably more resistance if you go back on a longer chart it actually hits back here as well but right now kind of the updated channel i get i could probably even redraw this channel i've just kept this on my chart for months now i think is kind of here's our channel what have we seen of late on this chart though is we've seen kind of some smaller candles these are like smaller candles right there that we've had and let me just erase some of those drawings so you can see it better is that unexpected no it's probably not unexpected after the market moves up you tend to have some consolidation and that's what we're seeing here all right so that's large caps but generally if we're doing technical analysis we're going to focus on the trend as probably the primary thing we're looking at and you can see the trend has been fairly strong on on the large caps in general and specifically the nasdaq 100 which is about 50 percent tech has had a good run up and again it's not surprising we've had a few days of a a little bit of a more mellow pattern after that run-up that we've had so we're seeing that now the russell 2000 the rut is um and that is the um support and resistance this has been more sideways and so we're probably going to pay less attention to the broader trend but more on resistance areas which i have drawn here and support areas which i have drawn here and this could act as either the middle line could act as either so trend is number one in what we're looking at support and resistance is probably number two in what we're looking at as technicians what's three what do you think is three well i don't know people would differ on that and maybe one and two is not the same one and two i just mentioned for you but what people will do is they'll look to technical indicators you guys have seen rsi indicators likely or macd indicators or stochastic indicators or something like that maybe bollinger bands are things you can use uh and i'm not going to focus on those so much today but there are some you can and some of those will incorporate something that is going to be the focus of today and that is volume so for example some of those indicators the ones that come to mind are like money flow okay the money flow indicator takes into account price and volume how about on balance volume or obv as it's abbreviated those take into account price and volume and you can find either of those here let me just pull up a stock i'll pull up thermo fisher okay strong trending stock let me go up and let me go into studies i'm just going to edit my studies and let's pull up and just take a quick look at those here's obv and okay well i guess not oh so on balance maybe there we go on balance volume and let me pull up i'm going to pull up money flow as well this is another indicator um that takes into account are our volume most of the ones i mentioned before don't they just look at price most of those indicators you look at on that list there on this list most of these are just looking at price price of the stock and that is what derives where we're going here but when we look at something like on balance volume where it just and basically the way the on balance volume works is it takes the unbalanced volume takes the current day's volume and it says is that was a day up or down doesn't matter whether it was up a penny or ten dollars was it up or down and if it was up it's going to add that volume to the previous total and if it was down it's going to subtract that volume from the previous total so you see how that add it takes both volume and price into account and so if you look at obv you can see it is going up and uh in general and you sometimes if you zoom in you can kind of maybe see it a little better but you can see it's going up maybe starting to flatten out here a little bit the stock's been going up and so when we look at this i don't want to read too much into this but a lot of times what we'll do is we'll look for what we call divergences in the stock which is getting is going higher higher highs higher lows you see that and the volume indicator here's the high on that obv and it's actually been going down a little bit uh or at least flat and the lows there's a low and we actually have a little bit of a lower low so we'd probably probably call that kind of a little bit of a divergence there on that when we talk about divergence that is what we're talking about there and the way to interpret divergences is typically you look at what is down here and say that's more likely to uh look forward as to what the stock is going to do okay you know and it doesn't always work right but maybe this would be a little bit of a note of caution a little bit of a red flag perhaps on thermo fisher scientific money flow index is constructed fairly similarly to obv it takes the volume and the price and it multiplies those to one another but uh that's how it that's how it goes there's money flow index and there's also just one that calls money flow but they're constructed very similarly all right okay so so indicators can be used and just plain volume can be used let me just get rid of these for a second and the traditional way to look at volume is here's volume and for each tick on the for each for each time period on the chart is it tells you how much volume was for that time period so for this particular day which is an earnings day so at a higher volume uh for that particular day we have this much volume i could hover over and see what it is and you can see you know green days are days where the stock went up and red days or the state was where the stock went down so you can kind of course match the volume to the stock okay um but the kind of the traditional way to do it isn't it's not a is volume bullish or bearish i guess is the question and the answer is it's it's not but it's all in the context of the stock generally if volume is high and the stock is rising on the high volume that is deemed to be more bullish if volume is low the volume is high and the stock is going down on the higher volume that is deemed to be more bearish okay that that's probably the most straightforward way to look at it but you could also add in a couple other twists to it what if the stock's up but the volume is low is that bullish well it's less bullish than it would be it's a little bit more bearish it's hard to call it super bearish given the stock is going up but you one way to view it is as jack typed in in the chat buy our confidence it's a way you could view it as votes in a way if the stock is going up but not many people it's it's thinly traded there's less volume there's fewer people maybe voting for it to go up in a sense so similarly i guess to do the last uh possibility is the stock is going down and the volume is is actually um declining as well the volume is not very high then people may deem that to be more of a bullish case even though the stock went down okay so that's the traditional way to to look at volume but just to repeat one thing here before we get to the indicator i want to look at and that is um as we look at this remember here the volume is is shown by the date this is how much volume is on this particular day this is how much volume is on this particular day now let's add in a volume profile indicator and then we'll kind of wrap it all together on volume profile i'm going to throw that on the chart and the chart's going to whoa what happened to my chart um that it should be showing data on the chart right oh i think as i zoomed in that's why okay so here's the chart um so this is an example of a stock that's turning up and what's all this on the right well this is showing the volume level you can see these this kind of histogram that's turned on its side here is showing where the volume occurred remember down here when we were looking at volume it was saying what how much volume was present on any given day this is saying how much volume is present at it at any given price so it doesn't tell the the volume by a time period it tallies the volume by how much it's spent time time it's or how many times it traded at that particular price so these are the higher points here's where it traded less this is called a volume profile so we can see where it was trading very a lot of trades down here and a lot of trades down here in fact where was the most trades made right here this little kind of red this reddish area and that's what they call the point of control you don't need to worry about the name on that but that's where the highest volume was and you can see that's kind of where it peaks out over here as well and then it gives you a range now you may be used to using on this chart if you've been around on charts if you've been around with us for a while standard deviations this is not a standard deviation strictly this is 70 percent as i understand it of the volume is within this which is close to one standard deviation but it's not exactly and standard deviations we usually use on things that we consider to be normally distributed and this is not not that necessarily uh but this is this is 70 of the volume isn't contained here this is where the stock has been and what i will say this first point on this volume profile is it's not um it's probably not as effective on stocks that are trending strongly such as tmo okay because look the stock has trended up strongly here and all this trading down here is kind of far behind it's going to be more effective if the stock is in this in these range is here now jack said it's another way to see support absolutely it is and we're going to go that's where we're going to spend a fair amount of time here talking about that but in general this is so this is a 70 range this uh they call this the value area again don't worry about that you could change that by the way you could change that to something else if you wanted uh so you just like any other study you can just edit it just click over here click on the gear and if i didn't want that value area at 70 i could change that right here to something else okay if you don't like the coloring on it you can do that as well the other thing you can change on this is let me cancel out of this real quick is you see how this is on the right side of the chart and this is kind of the the price date is over here on the left and this is on you can actually kind of overlay it on the chart so if you want you just go up go up here and we could say on expansion i'm going to take off that expansion click on ok um apply okay and now you can see this is kind of overlaid on the chart there some people may like it that way um so dylan says is there a way to put the base of the profile on the right side uh on the price axis okay so this is this is these are the two versions of this as to my knowledge here dylan uh that you can use you can either have it kind of separated how we had it or we have it this way and here it kind of overlaps uh so those are the ones that i the ways i know to uh you can adjust this all right um so let's um yeah i don't think there's any way to do that over there if that's not to my knowledge okay all right let's uh move forward there's one other thing i want to mention this is this is a accumulates the volume for the for the time period that we are looking at okay so in this case this is six month now if i want to i can actually kind of look at it in multiple time periods on the same chart now i can change this to say a three-month chart and it will it will sum those up for the three-month chart or i can go up here and i can go to um i can go up back and alter it we're going to edit this let me just show you one more version of this and i want to look at some different charts okay and i'm going to do uh times per and we could say i'm going to do it um on options this would be a monthly options expiration and now look at this oh look we got little volume profiles on this along the way and this may be more pertinent if you have a strongly training stock such as tmo which is you know that's a that can be a challenge uh there on this and uh let's so there we go that so that so in general here's another one let's look at dhr here's another strongly trending stock kind of the same deal you're probably more effective you're probably more effective on something that's trending pretty strongly if you do it this way but for the most part i'm not going to do it this way i'm going to actually go back because i don't want to i want to keep it fairly straightforward here and we'll look at some other stocks here so i'm going to just put the expansion i'm going to get rid of the expansion area or i'm going to make it the expansion area and we're just going to make this on the chart and do it this way the way i initially showed you here okay and then let's look at some other stocks here how about all right okay um so let's let's do this let's look at some other stocks and just kind of consider them look that one's trending pretty strongly as i mentioned here's one that's not trending so strongly here's merck okay so what do we see on merck um so uh on merck we have the most the our our profile is right here and our our our value area is here this is where most of the trading is the stock right now though um it's kind of mid one kind of right in the middle of the range this is a fairly s roughly symmetrical roughly symmetrical uh volume profile let me let me go to another one that may be maybe pretty symmetrical here's home depot fairly symmetrical and the and the point of control is right in the middle of it okay um and and so in that case how would we potentially trade this this is the area where the stock trades and seems to be more attractive but uh what if the stock goes to where it's less traded it's less attractive and therefore we we would generally deem this to be more of an area of resistance on this the stock is going to be more reluctant to go through this area and on the bottom side the stock has been more reluctant of late at least we had some trading back here but more reluctant to go down here so if we're looking at support and resistance we may look at this and say hey when we start to get up in this range that's going to be more of a resistance area down here is going to be more of a support resistance um and i am trying to um and and and so you could possibly look for more of a bullish trade down here if we bounce off a support area somewhere down here and we can look for more of a bearish trade if we're up here okay so um and now we may correspond those to support and resistance areas that are already on the chart i would probably consider this to be more of an area of resistance on the chart anyway and so they're kind of matching up there and similarly down here so what kind of trade may we possibly consider in this well maybe something if you're an options trader maybe something like an iron condor may make more sense here or we could always leg into something like an iron condor if this stock is up here and right now the stock's kind of on the high side starting to get to this area of more resistance therefore what you do is if we see more of a bearish indication up here you could do a short call vertical up here with a strike price a short strike up in this range and if the stock cooperates and goes down here and then we could do something like a short put vertical with our strike price uh down here now this is home depot so here's what we're looking at at this point we may be looking for something with a strike oh above well where's our stock the stocks right now uh our profile right now is around 3 30 and so we'd probably want it at least at 3 30. okay now like i said we may layer into this iron condor because the stock is way up here and if i'm going to try and pick a strike price right down here i'm probably going to get zero or pretty close to zero premiums on that so let's just do that let's layer into an iron condor on this and uh with the knowledge that hey technically we've been fairly sideways we have a resistance level in the chart about here and on terms of our volume profile it's right there so the bottom line on this volume profile for something with this kind of more of a symmetrical look is where the volume where the point of control is kind of in the middle and the you know you could kind of draw your curve right here and here's your point of control right in the middle is these are resistance areas this is a support level okay hoping that makes sense to you so let's do that let me look pull up home depot i'm just going to look out about a month here on this and see what we got and we said about 3 30 on the call side or more possibly i'll go down to we'll give it a little more wiggle room there around 335 i'm going to sell that and i'm going to go i'll buy out to the 340. i'm going to hold down my control key and there we go and we got a 175 credit on that this is just for the short call vertical then at a later point of time we'll look to get in a short put vertical okay if we're going to use that same chart and that would be when the stock is down near the bottom end of our point of bottom and near the bottom value area here okay so that's that one now let's look at some other variations of this how about um let's go to uh by the way you can see this also here's another one here's dow chemical this is kind of an interesting one because it has kind of a double but for the most part this is fairly symmetrical right let me get rid of that if i look at this uh let me get my drawing tool if i look at this guy here i could draw this forgive my drawing tool my mouse is kind of running out and here's our point of control which is roughly pretty close to the middle there now i'm kind of ignoring this up here this is small enough that i'm willing to probably ignore that uh so this would be considered to be more resistance here this would be considered more support down there okay all right so let's now let me let me move on and let's look at some that are a little more bearish or a little more bullish let's do uh let's do you know i actually already looked at merck but i kind of wanted to show something else here so here is merck again there's a certain symmetry to this but the point of control is down closer to the bottom of it so that sometimes with this volume profile we'll talk about like a a a p or a b shape here's what i mean a b shape well sorry hold on one second a b shape is where you come on see if this drawing tool will work for me a b shape is where your your your value area is kind of like that and it kind of goes like this and your point of control is down here okay and your point of control is down there and sorry this should be let me redraw that i apologize i did that wrong okay let me do that one more time i need more space where i'm doing my mouse here because i keep banging into things let's try that again okay here's what we call a b shape it kind of goes like this the volume profile and our point of control is down more down here and so if the stock goes up here if and if the stock is up here we'd be more bearish that's if the stock's up here but the point of control is down here so this in other words you can kind of almost view the point of control as kind of this magnet in that sense okay um this is the b this is the b shape is what you'd call it so if you can kind of imagine a b kind of like that okay so sorry my my drawing skills are not not very good on that okay so that's kind of the b shape maybe you can kind of envision that so the so this is going to be kind of the magnet this point of control so if the stock gets up in this range what are we going to do we traders may look to go bearish at that point now to on the other side of things there's what we call kind of a p shape and the p shape is get my it's just going to be the b shape flipped upside down you know you think of a p it's kind of the opposite of a b and the p shape is kind of like that let me just do this okay and our our point of control is up here and the stock is down here and we're going to assume this is going to be a little bit act more like a magnet and we'd be a little more there that's more of the p shape all right so just you if that is helpful to you great use it if the whole pb thing doesn't help don't worry about it okay now jack said do the number do the numbers change the tighter the chart period well if i change the time period on a chart like this it may not make that big a difference we'll experiment here but if i see a stock if i see a chart where and that's a great question what if i see a stock a chart where on the six month the the price data is goes come on why is that not drawing try one more time the price data is down here and then it goes up here like this okay well there will probably be a very different view on the six month versus the three month because if i look at a three-month chart i'm cutting off all this data that is showing trading down here so the time frame can significantly impact uh what this looks like so if if you um if you want uh adjust the time frame that is most relevant if i had this strongly trending before this time period i would likely likely go and do it you know just adjust the time frame so it has the more relevant data remember though this is more the point of control and the trading is more likely to be more of a magnet if the stock were to go up in this range we would be considered this to be look this is uncharted territory or not totally uncharted but less charted territory for the stock we'd consider this to be more of a resistance area there okay now uh let's look at a bullish more of a bullish type uh possibility um let's go to let's go to 3m here okay and here we go the stock is down here most of the trading we're in the lower end of our range now our point of control is down here as well so it would be more bullish on this if our point of control was up here okay if the stock were if this chart showed the point of control up here it would be more bullish nonetheless i would say um nonetheless i would say hey look we have our our kind of our support area in this range here for the for the value area for the volume profile and just visually you can also look back here and that probably matches up pretty well with this so a lot of times when we're looking at we're looking at support areas and this may be fibonacci retracements you guys i think for those of you who have used fibonacci retracements you know well often what we'll do is we'll look at them and we'll see where they line up with other support levels okay or maybe we'll use a moving average and we're looking for a support or a resistance level and what we'll do is we'll look and see it past data and look and see where it lines up with past support and resistance levels and so we're going to do the exact same thing here is if we can get the double whammy of support here and support here then that is going to be a pretty good indication of support all right okay let me do uh let's do another one and maybe we'll do a trade here okay now uh uh jack said something like relevant to option trading so when i talk about more of a bearish trade everybody for options traders that may you know be a very a very typical concept that you're dealing with you don't have to be a option trader to do bearish type trades but if you are interested in learning more about options we do have a getting started with options class and uh for the life of me i can't remember exactly when that oh yes i do i have a in front of me tuesdays at noon eastern time tuesdays at noon eastern time if you want to learn more about options you can do that that's not the focus of this class we're focusing on the technical analysis aspect of this you can do bullish trades you can do bearish trades but here's kind of a typical one here's a typical of the p patterns okay remember when we talked about a p pattern let me just kind of review it real quick here's our p pattern and i'm going to just kind of draw this out this is kind of a p like that right so if you can kind of envision here's my p right that's what that's supposed to kind of look like where's our point of control our point of control is up top we're going to consider that to be a little bit more of the magnet type thing where's our stock right now our stocks down near towards the bottom and so the even though the trend is not up on this stock by any means this is more sideways this would be more of a bullish indication for this trade because the thought is hey most of the trading is up here the point of control is up here and therefore this is more likely to go up in that way that direction okay so you can do it that way and we also have some support down here now what about the actual entry signal is that something that you're going to pay attention yeah maybe you know it depends on you maybe you look at a candle pattern as your actual as your actual entry signal maybe you look for a close above the high the low day which i know um which i know that a lot of you have heard about in other classes that we've been to technical analysis classes those kahold type traits so you i'm not saying you need to use this as an exclusive measure on trading but if you want to if you want to add this in addition to things like a hold or a candle pad or something like that you can certainly do that in this case you know our cohold was actually back here but i'm going to place the trade on this anyway because this is a this is kind of a a prototypical uh p pattern type bullish signal here on ibm now could we could we do it where we sell out automatic yeah we maybe we had a target price up near that 147 level okay and we'll do a stop down near the 136 level okay so in fact let me just jot that down we're going to say 147 is the target 136 is our stop so i'm going to right click on that i'm going to buy custom with an ocl bracket if you're new an oco bracket basically is just saying hey i'm going to buy it and i'm going to sell out if it goes to a certain price on the high end and i'm going to sell out if it goes to a certain price on the low end this is a 141 dollar stock don't feel obligated to buy a 100 shares of stock if you're comfortable if you can only buy 50 shares make it 50 shares make sure you know the quantity and make sure it makes sense there's no rules you know when i started trading this was over 20 years ago actually first trades were probably 30 years ago you were penalized by brokers if you did not buy a round lot of shares if you bought 90 shares instead of 100 shares the commission was higher because it was not a round lot well thank goodness for internet trading and and whatnot but that's not to mention the initial commission that i paid at a discount broker was fifty dollars each way on the trade boy have times changed and that's a good thing it's good for you it's good for any trader investor out there and uh you know it's not padding the pockets of certain uh certain you know brokers or anything but with these with these commissions which are basically no commissions right now on u.s equity u.s traded equities

that's a good thing so don't feel you need to buy 100 shares of stock is my my my point here it makes things a lot more possible so what did we say we said 147 was going to be the target in that case i just picked the point of control but now should be the value area on this so i'm going to do that as a one oops wrong one 147 limit price and limit is one way you know if you confuse the whole limit stop thing limit is the target it's the good area um donald donald typed in the chat that was cheap some charged 250 a trade yeah that was a discount broker supposedly that i went to it went up from there and and uh it's crazy how things have changed i'm gonna make this good till cancel because you know otherwise this order would expire in a little bit over an hour when the market closes and on the on the s stop signs and the stop sign is the the less desirable scenario um and oh you know what i i messed up on that didn't i our point of control is 149 and 130 149 and 135. so our stop is going to be 135. i don't know what i was looking at i think i have channel lines drawn on here and that was throwing me off okay so 135 again that's going to be good till canceled and this was going to be 149.

okay there we go now if you're just doing not a shorter term trade maybe you don't even put in the the limit price here okay um so just to kind of summarize this this is an order to buy i have a 141 80 limit on this let me just um a 140 180 limit just which is not right that's stuck hold on i'm just going to make this a market order to enter so we get in and this is going to be 149. for those of you who didn't see what i just did let me let me explain what i just did and 135 on our stop uh the price showing here was locked in and it was well above there which i guess it wouldn't matter we would have filled anyway but i just put in a market order to get filled on this the limit order is the target price the stop order is the price if it doesn't go well okay now uh what about if you're you know sometimes i get questions on like people are doing a short option or something and they get confused by the whole sell limit or the the order to get out the buy limit and buy stop but if you remember the way i just told you the limit price is the target price and the stop order is the scenario you really don't want to have happen uh that'll keep it straight for you okay that works whether you're long or short all right and then we can place that i got 50 shares confirm and send and send that okay so there we go this is the volume profile folks try it out maybe you like it maybe you don't like it but uh you know i think it could be a valuable tool for you if it is something you can add it to your repertoire if nothing else keep an eye on volume you may consider some of those other volume indicators there it is really um it's really a kind of volume is kind of a key tool that technical traders use so we did a quick market review we talked about some of the basics of the volume profile we looked at a few examples of that that volume profile tool and we actually just placed a a practice trade there at the end remember options i mentioned options briefly there at least or actually we did a quick option straight options are not suitable for all investors it's a special risk inherent to options trading may expose investors to potentially rapid and substantial losses and in order to demonstrate the functionality of the platform we did need to use actual symbols however td ameritrade does not make any recommendations or determine the suitability security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility stop-loss orders will not guarantee an execution at or near the activation price once activated they compete with other incoming market orders that's key because i just showed you a stop order on that everyone you know we got a holiday weekend this weekend i hope you have a nice weekend if you don't want to miss any future episodes of these and patch should be back next week click subscribe at the bottom of the screen there and if you liked it we'd love it if you click like as well also thank you to mr michael keeley for helping me out today in the chat and um i am grateful to you uh for taking some time out of your schedule to join me in the meantime coming up next we have a think script studies class ken rose i believe we'll be teaching that i'll be helping out in the chat on that one uh have a wonderful weekend everybody bye-bye [Music]

2021-09-05 07:08

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