ES Volume Profile of the current Balance Area
Showing posts with label VPOC. Show all posts
Showing posts with label VPOC. Show all posts
Sunday, January 30, 2011
E-Mini S&P 500 Futures -- Balance Area Volume Profile
One of the metrics I keep track of is VPOC shifts from day to day, and a large VPOC shift typically provides edge in direction of the shift for the next few days. The VPOC on Thursday 1/27 was 1295.75, and it shifted down 23 points to 1272.75 on Friday 1/28. That being said, we still have to keep in mind that the market has been in an up-trend, and week over week, Value actually shifted higher. We have heavy Acceptance at 1270.50. The market may just consolidate within the 1267.50-1286.50 range for a few days until we get some real direction. A break below 1267.50 puts Sellers in Control. Good luck!
ES Volume Profile of the current Balance Area
ES Volume Profile of the current Balance Area
Saturday, August 28, 2010
My Thoughts on VPOC Shifts
VPOC stands for Volume Point of Control and is the price level with the heaviest volume for the day. This is the price level with heavy Acceptance by both, Buyers and Sellers. The level signifies Agreement by both parties on Value. Now, if the Buyers and Sellers agree that a certain price is Fair, then the market could remain in balance trading around the VPOC until additional information (a catalyst) changes the opinion on Value or it could head in the opposite direction and test a previous area of Rejection (disagreement). VPOCs serve as great Targets.
Given the above definition, what do you think a shift in the VPOC represents and how should you trade it? For starters, a shift in the VPOC represents a shift in the opinion on Value. But how do you trade it? It depends on the Context. To keep it simple we'll just say Context is either a Trend Day or a Non-Trend Day. Majority of the days are Non-Trend Days so we'll cover that first.
Non-Trend Day Context
For our first example, lets assume we're trading within the Context of a Non-Trend Day and the VPOC shifts Up. Suppose you're Long from 1050 and the VPOC shifts up from 1045 to 1055. The Shift Up tells us that the opinion on Value has changed, but more importantly, it tells us that Buyers and Sellers AGREE on Fair Value at 1055. If they agree on Fair Value, and there's no additional catalyst in the market to change that opinion, then it makes sense to exit or scale out of your Long position because price could just rotate around the VPOC now until new information (a catalyst) is introduced in the market and changes the opinion on Fair Value. Price may also reverse here and test a previous area of rejection (Low Volume Node). The bottom line is, odds of continuation up are now lower and you need to ask yourself whether you would Initiate a new Long position at 1055. If the answer is No, then why shouldn't you scale out or even exit your Long position here?
Trend Day Context
The concept of Value is slightly less critical on a Trend Day because the market is searching for Value. This is where looking at a Composite Volume Profile chart can be really helpful because price will typically head towards a previous Area of Acceptance or Rejection, but on a larger time-frame. On a Trend Day, Price will make a directional move away from Value and Value will catch up to Price. Value is catching up to Price when you see the ES consolidate in a range for a couple of hours after an initiative move. You will save yourself so much money if you're able to identify Trend Days early in the morning but that's a whole separate topic/post. Even on Trend Days, lightening up your position on a VPOC Shift is not a bad idea but just know that the pullbacks will probably be bought and the VPOC could shift again (double-distribution trend days anyone?).
I hope this post clarifies and answers some questions on VPOC Shifts. It's a simple and brief post, and I certainly don't expect it to answer all the questions. This is just my own logical way of interpreting VPOC Shifts. The learning never ends, and I'm open to your insights and welcome your comments on this topic.
Given the above definition, what do you think a shift in the VPOC represents and how should you trade it? For starters, a shift in the VPOC represents a shift in the opinion on Value. But how do you trade it? It depends on the Context. To keep it simple we'll just say Context is either a Trend Day or a Non-Trend Day. Majority of the days are Non-Trend Days so we'll cover that first.
Non-Trend Day Context
For our first example, lets assume we're trading within the Context of a Non-Trend Day and the VPOC shifts Up. Suppose you're Long from 1050 and the VPOC shifts up from 1045 to 1055. The Shift Up tells us that the opinion on Value has changed, but more importantly, it tells us that Buyers and Sellers AGREE on Fair Value at 1055. If they agree on Fair Value, and there's no additional catalyst in the market to change that opinion, then it makes sense to exit or scale out of your Long position because price could just rotate around the VPOC now until new information (a catalyst) is introduced in the market and changes the opinion on Fair Value. Price may also reverse here and test a previous area of rejection (Low Volume Node). The bottom line is, odds of continuation up are now lower and you need to ask yourself whether you would Initiate a new Long position at 1055. If the answer is No, then why shouldn't you scale out or even exit your Long position here?
Trend Day Context
The concept of Value is slightly less critical on a Trend Day because the market is searching for Value. This is where looking at a Composite Volume Profile chart can be really helpful because price will typically head towards a previous Area of Acceptance or Rejection, but on a larger time-frame. On a Trend Day, Price will make a directional move away from Value and Value will catch up to Price. Value is catching up to Price when you see the ES consolidate in a range for a couple of hours after an initiative move. You will save yourself so much money if you're able to identify Trend Days early in the morning but that's a whole separate topic/post. Even on Trend Days, lightening up your position on a VPOC Shift is not a bad idea but just know that the pullbacks will probably be bought and the VPOC could shift again (double-distribution trend days anyone?).
I hope this post clarifies and answers some questions on VPOC Shifts. It's a simple and brief post, and I certainly don't expect it to answer all the questions. This is just my own logical way of interpreting VPOC Shifts. The learning never ends, and I'm open to your insights and welcome your comments on this topic.
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