Profile and Flow Series: Acceptance, Exhaustion and Liquidity with Volume Periodicity

Alright everyone, so in this video we're going to be talking about volume based periodicity. And this is something that you can use whether you're trading Bitcoin, crude oil or the E, Mini, S and P. So it's translatable across multiple markets. Now, before we get into it, the most obvious and common periodicity is a time based periodicity. I don't feel like I have to go over what that is or how that works. If you're taking an order flow and market profile course, I'm assuming that you understand how a time base candlestick is printed. So it's if you're looking at a five minute chart, you know, like we are right now, each candle is printed based on five minutes in time. Okay. There's nothing that's required in terms of activity. The only requirement to print a candlestick is that time passes. And this is one of the reasons why this kind of periodicity can hurt our trading. Okay? It prints activity where there might not be any. So there are times when the market moves sideways when there is really no trading activity whatsoever. But just because time passed, our chart is going to register some type of structure. So it typically will look like this when there's no activity. Okay? Volume based periodicity, volatility based periodicity, Any of these types of periodicities involve some type of criteria being satisfied other than time. So for the volume based periodicity, we set a certain amount of volume that we'd like to see for each candle to be printed. So in this case I'm going to be using a 5 million contract periodicity. But for future reference, I use a 5 million contract or a 10 million contract. And you could use more contracts if you want to print more higher time frame structure to get a more clear idea of maybe what the bigger picture is with less noise. But, but any kind of volatility or volume based periodicity is going to be less noisy to begin with. And when I say less noisy, what I should say is not that there's going to be less activity or less structure printed, but that the structure will be more honest, right? It's going to show cleaner structure. So a volume based periodicity like we said, is in this case going to be created for 5 million contracts. So we're looking at right now a chart where each one of these candlesticks is based on 5 million contracts being traded. It doesn't matter if it was all 5 million contracts at the offer or all 5 million contracts at the bid. It doesn't matter what the delta is, just that there was 5 million contracts traded. Okay. There are a few things that you benefit from when using a volume based periodicity. I said originally that it's good for showing honest and true structure. So again, when you're using a time based periodicity, it's going to be printing redundant candlesticks. Right. Just through the passage of time alone, you're going to be printing these little candlesticks that really are less than a tick value. And if these aggregate up enough, what it could do is influence your decision making in terms of what structure you're paying attention to. Right. There might look like there is activity down here because there are candlesticks, but in reality, when you look at a volume based chart, we might see that there are just a few candlesticks down here and that there's really nothing that occurred. Okay. The other benefit of looking at a volume based periodicity is that it gives us an idea as to where liquidity is and where liquidity isn't. When you have a candle that is standardized based on volume and you have a candle that has a high range, so we're talking about the high low, what that could indicate is a lack of liquidity. So when we see that price is moving through an area and there are only a few candlesticks and each of them is printed based on the same amount of volume, but they have a large range in terms of the high low of their structure, this could be an indication of a lack of liquidity. Okay. A lack of liquidity, a lack of two way activity and how we're going to use this. This is also good for identifying the difference between acceptance, exhaustion, loss of momentum, to name a few. So it also shows us where there is obviously an increased amount of liquidity. So when we use a volume based periodicity with something like cvd, it helps us more easily spot where these sticky points are. Because let's say that we see the market come into an area and print a ton of candlesticks. Okay. Or we see that as price approaches a level that it's printing a lot of candlesticks, but it's not advancing. Right. And we see something like delta advancing. This means that for the increased volume and increased activity, price is doing less to move through an area. So again, this is useful for showing us overall levels of liquidity. And when you're pairing this type of periodicity with a CVD chart, it can be very useful. So again, this shows us, just to reiterate these points, actual levels of activity. So we're seeing where actual activity occurred. We're not getting any candlesticks that are printed where they are unnecessary to print. The last two things, acceptance and exhaustion are going to be what we focus on in this example. So how you can go about using this in your particular trading approach. So what we're going to be focused on, and this is a more recent video Today is August 3rd. So we're going to be focusing on this range that we're in, the area that we're going to be focusing on to show you the difference between acceptance and previously, exhaustion and lack of acceptance are right here and right here, same level across. So that 9800 zone. Okay. Up until this point this was tested multiple times. All right. Now this point is important in particular because after these lows, price was starting to grind upward. So if there was a breakout to be observed, everyone's eyes were on the chart right here. Okay. And the point of doing this type of education or going over this is to help you identify maybe when you should get behind this trade looking for a breakout or when you should maybe anticipate some type of failure. So then we're going to come to this example right here where you're going to see there's kind of a stark difference between what we see when there's lack of acceptance and more exhaustion and what we see when there is acceptance and a sign of auction. So getting back to that chart, we're looking at again, the 10th of June. So here's a time based periodicity. Excuse me, Here's a time based periodicity. That is the initial move up. This is the grind, this is the failure. So specifically now that we don't need that notepad out, this is the move up right here. And then this is the failure. Okay, we'll go down to the five minute chart. Well, if I go down the five minute chart, I would need to scroll back for quite some time. Let's see if I could do this without killing the video. So go back June 15th. We are almost there, so we might as well. So June. Excuse me, June 10th. Hopefully we don't run out of data from trading View video is on seven minutes. So we're still good on time. So here we are right here. Okay, so this is the spike up June 10th. Okay. And then this is the failure after that grind. So you could already see when you're looking at a time based periodicity, we have a lot of bars. Right? A lot of bars. Again, one of the benefits of using delta or footprint charts, anything that's volumetric, is that we see activity in the time based chart, we don't really see if there was any activity up here. We don't know whether there was a lot of trading volume within each level. Again, all we see is the signs that rejection is showing up based on price action. Right. So we have these wicks and shadows to the upside. So there's a lot of candlesticks over here, but there's really not much to show for it. Okay, it's not much. There's not much we could go off of based on just that alone. So now we're going to look at the volume based chart. So specifically, this is the break. So this line just to relabel or go over that, this is the 9800, 40, 9900 level that we're trying to pay attention to. So these two red lines. So right under 9900. Okay, again, just to reiterate why these are important. So backing up now that we don't need to use this on that setting anymore. So we're looking at these levels right here. So 98. Right under 99. Okay. Where there is a ton of activity over here where we rejected prior. Okay, so 99, 92, right there, right below, we're looking at from 98 to 90, excuse me, 9800 to 9900. Now when we look at the volume based periodicity at that last attempt upward, that final thrust upward. This is that last period before we dropped off. What you'll notice and remember, each one of these candles is printed based on 5 million contracts being traded. Things were tight until the break through those levels. Once we got the breakthrough these levels, it was actually tight below. Actually not that tight. Excuse me. Things were not that tight. They were tight in this range down here. But as we began to expand, things became very loose. So once we break above this 9800. Excuse me, 9880 level, what we do is we transact about $200 in range. Okay, so from Breakpoint to the high $200. So up to 10,180. Excuse me, this is in this case, this is. We're looking at 9800. Yes. So that is $200. Okay, so $200 and we have 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14. About 14 candlesticks. If we just consider right through the break right here. Now each of these candlesticks is getting pretty tall, right? There's not many candlesticks. They're getting pretty tall. The rejection, the same thing. Very large candlesticks. And again they're standardized based on volume. So what this is saying is there's not a whole lot of activity up here. There's. There's not a whole lot of liquidity, and that this looks kind of exhaustive. Right. Whenever there is a lot of activity, when there's a lot of volume taking place, these candles in a strong trend will be smaller because there won't take much or it won't require much to print each new candle. Right. Because it's just based on volume. So when there's a lot of activity occurring, when there's a lot of volume that's taking place or being transacted, there's going to be a lot of small candlesticks. A healthy trend and acceptance will actually look more like this CVD chart down here. So these are our last attempts above that high point. After what was sort of the final push, price had been grinding upward again. Price is grinding upward from down here. Again, we have clean structure based on the volume chart. And price in its attempt upward does not show any kind of acceptance. All right, 13 candles through the high. In this case, on this retest, you have barely any activity. A lot of dispersion, though. Right. Consolidates briefly. But again, high, low range, not very tight. Definitely not tight over here. Okay. No real signs that price is doing anything to settle and that there's any signs of true acceptance. Right. Rather than lack of liquidity and exhaustiveness. So now we're going to go to our more recent attempt that was successful. So going back, and remember, we covered $200 range in 13 candles. So now we're looking at more recently, the break of 10,000. Excuse me. 9,800 level. 9,890. What did I have it listed specifically? I keep changing my numbers because I can't see it specifically. 9840. 9800. Okay. This was just capturing the highs of the range using the volume chart. Okay. The previous range. So now this is our more recent approach to the level. So notice something between these candlestick sizes. They look more like that original cvd. There's a lot more activity leading up to this with directional conviction. So we see that price is on its way up, but it's not that it's on its way up, covering a range because there's a lack of liquidity. Instead, we're printing a lot of candlesticks in this move up. More importantly is after the break. So keep in mind, this is the same line. We covered a $200 range within the last structure in 13 candles. Okay. So from here to that same level, which was at around 10,180. So if we're going from 9,880 up to this point, let's just mark this out. And after I go over this, we're going to explain what this, exactly what this indicates. So we have 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 candles just up $80 above this level. So, excuse me, $100 above this level. Now I don't think I need to count the rest, but we have twice the amount of activity above this level already. And immediately, even in the initial sell off, you could see things are still tighter at the high. So we get an initial sell off and then things again become tight as well. Now more importantly is the activity that occurs after the levels held, right? So it's not just that you have a ton of activity. So first sign back here is the amount of candles that we're printing through the level this time around. So we don't have these very tall exhaustive candles through this structure. What we have is these very tight candles on the break. So very tight on the break. Nothing like this, right? No exhaustive move through. Still more importantly is not just the break, it's the re excess. It's, excuse me, the test afterward. So in the test afterward we splash down into the low. If you look at a footprint chart, you would look for signs that there was aggressive selling. But more importantly that activity above this level remains high. So this new level that price had not been accepted prior that we see there's a ton of two way activity. So what you can see is that we have a lot of candlesticks, whereas in time we did not necessarily print nearly as much. So this is giving us an idea that now price is moving above this level and that we are seeing a sign of acceptance as we move into this low. Down here we have a ton of candlesticks that are being printed. So it's not like we're just jabbing the low if we go back to that last period or that attempt. Rather it's not like we are just jabbing the low and then losing this structure with very, in this case, the candlesticks having a very high range and the activity coming below rather than above. The most important thing is that on the break that we see that buyers and sellers are accepting this new level. So activity is one indication of this. And then above the level we're seeing that same pattern occur. Okay, not that we are losing the level, but rather that we are holding the level. And again, continuously printing this new activity. Now, in any kind of failure after this failure, where there's this lack of acceptance and price breaks down, you're going to see activity come in, but it's going to be in the wrong direction. Right? So remember, bear in mind this is direction contingent. Right? So we were looking for acceptance to the upside and the activity really starts coming in, but it starts coming in back under the structure after price starts breaking down. So a really bad sign would be the opposite. Right. And we could just cover this trend going the other way. Is that on its way up through the level, we have not many candlesticks being printed with relation to that acceptance that we just saw. And then after price breaks down, past previous levels. So when we're looking at previous levels, we're talking about previous swing points up into this last test, after price breaks down, excuse me, you see that we have a ton of these small little candles. And what that means with directional conviction, since this is moving down, is that sellers in this case are accepting these lower prices and being active at these lower prices, whereas previously they weren't. Okay, so we're accepting lower prices and buyers and sellers are willing to trade at these lower prices, whereas we are trying to make an effort upward. So this is how you use a volume based periodicity to your advantage. It is something that the same when you're using CVD can really show you where levels of liquidity are. But more importantly, when we have an area that we've drawn as a line in the sand, what we want to see is that when we approach these levels, these levels don't look exhaustive. And that we see that buyers and sellers are accepting these levels through their increase in activity. So going back to this high, what you see is just a few candlesticks, right? Not much activity. Going back this high, right here, just a few candlesticks, not much activity. Whereas when we go back to where we are currently, we see that the story is much different. So when we go back to that original break, just to reiterate one more time, so 9009, excuse me, 9800 level. So we see into that break, we have a ton of activity into the level, activity is maintained above the level. And then more recently, as we move forward, it is continuous to the upside, right? Continuous to the upside. There are going to be points where it's thin up here. But the most important point is that through the break that we see this kind of behavior.