Order Flow Intro: Volume Profile vs TPO

Alright, so let's talk about volume profile versus just classic TPO charts. Now we use volume profile and market profile together, and we think that you need to use them together. But there are some people that think that TPOs are more advantageous without volume. So we're going to get into why that is. But before we get into anything, let's first go over what the original assumption behind the market profile chart or TPO chart was. So we know that this TPO chart with all these boxes, each one of these columns represents a half hour period throughout the day. And what this is showing us is where we spent time within that period, the range of price movements within that period. Now the whole concept behind this is price time and volume. And that time governs all opportunities. And that volume confirms everything. Okay, so volume confirms whether or not an auction was successful or not. Now when these charts were first created, there was no volume reconciliation until the end of the day. So there was no access to up to date volume information. So this presence alone was assumed to represent volume. So if we had a large high volume node that was just as I said, a high volume node, it was perceived as volume. It wasn't. There was no idea as to whether or not that just represented a time where the market was moving sideways, staying in a given area, but really no volume was being transacted, which can happen and the opposite can happen where the market spends barely any time in a given area. There might not be any sign of volume coming in and we might just have excess on the TPO chart. So originally the TPO chart and this was a time before all the advances in systems and technology that we currently have, originally this chart represented volume. These boxes were seen as the presence alone was seen as participation. Okay, was seen as volume. So some people like to just use the TPO chart still without any consideration of volume. Now the argument is that during certain market opens and market closes, such as equities, for example, that a volume profile can be drastically thrown off. And it could give you the impression that there was some type of meaningful activity that occurred. But really it was just because for that particular asset, market opens are just that, they're a little bit more active, they're highly kinetic, there's a lot of two way trade, but really it's just part of the market open. So what that would do would create a volume aberration within the profile that was again interpreted to be meaningful in maybe the days following when really it was just one of the aspects of market opens and market closes for that Particular asset highly active open or a highly active close. Let's say that earnings are releasing and everyone's going long into that asset before close for that day. If earnings were releasing after, you could think of some reasons why there might be a ton of activity at market open and at market close. And this gets into why even during a TPO chart, the initial balance is seen as an important period throughout the day. Okay. That activity, to take in consideration the range of activity during that period. But again, volume profile was seen as potentially being thrown off or the distribution would be wrongly thrown off because of those aberrations. Alright? So our whole belief is that both should confirm each other. So we have to have an idea of where we spent time throughout the day because that time is going to create market structure. And as long as we're trading something especially like Bitcoin, where there's a great degree of, there's a self fulfilling nature to the ta, structure is very important. Structure tends to be respected especially when it is built up over a long period of time. But we do need to see that volume confirms this structure. Okay? This is especially important when we have changes in market structure. So there are signs of excess on the TPO chart and within volume profile. Okay. And these both mean sort of the same thing. So if we see for example that we have a large tail within a structure and this is, for example, this is a buying tail. If we had a very large tail, we would say that that's excess, right? That the market auctioned into an area, found that other timeframe participant came in contact with a buyer that was able to drive it up in a very short amount of time. Now this is a sign that there was really no two way trade, right? No two way trade. We would see this as a structural anomaly or as potentially an area to revisit in the future and hopefully we would see the same level of response. And if not, that is potentially one of these gaps that we could take advantage of. But still, what we need to see over time throughout the day is that volume is confirming these price movements. So what we do is we try to find as much confluence between this structure as possible, between the meaningful areas that we put forward within the TPO chart as being important, which are the value area high, value area low and point of control, and the same within the underlying volume profile. So what we should see is that if we are paying attention to something like a balanced range especially, okay, that the value area, that there is almost a one for one within the value area that exists between the TPO chart and, and the value area that exists between the volume profile, we don't want to see that volume is not confirming what is a balance range. Especially in the case of a balance range. What we're more likely to see is a shift in this when we have and we want to see a shift in this and support in this when we have a trending period. So what we need to see when we say, for example, that we need to see that both are confirming each other, what we're more talking about is that when the market auctions in one area, when we start establishing structure based on the TPO chart, that we're starting to see the same activity in the volume profile. So for example, let's say that we're looking at something like this. So we have this three day bound structure where you have almost an inside day within these two value areas came out of this inside structure over here. And you could even look at this if we wanted. But we're going to focus on what is this trending day when we have overlap and we have multiple days that are essentially imbalance. What we want to see is that in the areas where there was previous selling tail, where we had a good high or a good high over here, we'll combine all these profiles. What we want to see is that finally when the market does gain acceptance outside of this range, that we've been stuck within this fair value area, the value area for the three days, what we want to see is that volume is confirming any move outside of this structure. So when price makes its way out of this structure, one of the best things that we could see is that ultimately at the end of the day this is reconciled. But there's a ton of volume that comes in above this structure to support this move.

A poor example would be if we broke out of this structure. So if we broke out of this balance range and the volume profile was flat relative to a TPO chart that showed activity, so that would be an early sign that maybe we were having a failed auction. Okay, so failed acceptance. So the volume profile is something that we use along with the TPO chart to just confirm that there is two way trade, that price is being accepted at new levels, especially when you have some type of break from balance. Now this is also something that we want to be paying attention to during a trend. So during a trend, especially when you have activity that is, you know, has conviction to the upside or to the downside, the last thing that you want to see is, you know, we'll draw this out let's say that we have a structure that, on the TPO chart looks something like this.

Okay? So that's our TPO chart, right? This is a trending period on the tpo. And ultimately, what would this look like if this was undone? It would probably look something like this, right? What you're seeing is that the low volume nodes are where Price was imbalanced and was moving during this trending period. This is your TPO chart. This is a good trend, right? What you want to see within this trend or to confirm this trend is that the volume profile looks relatively similar with each one of these levels that Price had found that buyers and sellers were remaining interested in these new levels. Right. In taking the other side of these new levels, or rather, buyers continuously getting behind these moves, however you want to put it, it's the fact that there is auction process at these levels rather than just Price being present. Okay? So there is actual participation rather than just presence. So a poor sign would be. Let's say that we have a TPO chart like this for a range like this, or rather, excuse me, for a trend like this. And our TPO chart looked something like. Draw this a little bit better. Our TPO chart, or rather our volume profile, excuse me, looks something more along the lines of this, okay? So the TPO profile showed that there was activity and this was a trending structure, but the volume profile showed excess, okay. Signifying that as we were getting towards a high, we might be seeing a potential sign of exhaustion or just the fact that buyers and sellers are not really confirming these prices. And it's more likely that we revisit the last area where they did. So we use both of these in conjunction. Okay? Now. Now, this might be confusing because sometimes you're looking at a structure and you're saying, well, which structure do I pay attention to? Or rather, which finer point within the structure do I pay attention to? We have, you know, sometimes we have a volume profile point of control and a TPO point of control that are vastly different. What you'll notice is that more often than not, they will confirm each other. But what I will say is that what we should be doing is trying to find the confluence between both of them. So if you see. Because at times it's such a marginal difference that if we're looking at a structure like this, okay. And this is just to point out how it's not really that important sometimes if you're looking at a structure like this, and we could see that precisely. And remember, this is all based on the resolution you have for your chart as well. Okay? So if we're looking at a structure like this and the volume, the TPO point of control is from, you know, 9485 to 9495, and then you see that the point of control for the volume is 9501. Well, don't get hung up on those differences. What you are focusing on at that point is that's the volume point of control. That's the high volume node under. And it is confirming the TPO point of control. What you want to be paying attention to is when there's vast disconnects, okay? When there is vastly different disconnects, or there is rather a vast disconnect, meaning there's a wide difference, that's when you should start paying attention. Right? When you see that. For example, let's imagine that Price. Let's draw this out again. Let's say that, you know, here is our volume profile, all right? And the point of control is up here, all right? And, you know, the TPO point of control is all the way down here. Well, you know, we want to keep more in consideration to where most of the volume came in. All right? So in this case, you know, what we wouldn't be saying is that Price had built a base down here just because we spent the most amount of time down here. It'd be more than likely that, if anything, that there was more overhead resistance at this point. And this is only. I'm saying this because if you see that Price has. Let's say that. Let's draw a better example. Let's say that Price had come up and this was a ranging period.

So here's a ranging period. And let's say over the course of this range, the TPO point of control is transacted down here. I could do a better job than that. TPO point of control is transacted down here. But the volume profile point of control is more towards the high. All right? Now, if you're in the middle of this, this is not a structure that I am more apt to say has built a good base and is definitely likely to move up because the fact remains that most of the volume has transacted at the high. If anything, this would be a structure where we would say that there's less weight to this being a base for continuation than there is for potentially the fact that rather than there is a situation where potentially longs are in more trouble than shorts. Right? And if anything, getting above this is most important now, not this point of control that's down here. So what we need to do is always see that these are confirming each other to show us that wherever we're spending time, that there's actual activity that's taking place at those levels. Because the market could technically just move sideways and print a TPO structure, right? It could print a structure that gives us the impression that there's actual meaning behind that structure, when really there was just a sideways market where there was no two way trade. So always make sure that these two are confirming each other.