Lessons from the Pros


Profiting with Volume Distribution

There are quite a few professional traders who use a technique called Market Profile in order to increase their chances for being successful when they are day trading.  When we are trading and investing for ourselves, we want to use the same tools that the professionals use to dominate the markets and reap profits from the uneducated novices.

Free Trading WorkshopAt Online Trading Academy, we use TradeStation’s software while teaching our courses and also for the students’ live trading practice.  TradeStation offers an indicator called Volume Distribution that is very similar to the Market Profile tool that the professionals use.  In past articles we have also discussed the importance of volume and how it can be used as an odds enhancer.  It is always important to remember that you should not enter into trades based on any technical indicators alone; they are only used to increase your chances of having success in your trades while applying Online Trading Academy’s Core Strategy to your charts.

Volume Distribution is a simple indicator.  It notes the current prices that a security is trading at and marks it on a chart with a small box called a cell.  When prices move enough, either up or down, a new cell is created.

volume distribution

The first cells will be labeled with the letter “A.”  When a certain amount of time passes (this time can be set by the trader but is usually 30 min.) a new letter is used for the cells.  Notice the daily chart of the S&P 500 Index starts with “A” for 9:30 to 10:00am and then switches to the letter “B” for 10:00 to 10:30am and so on until the letter “M” is used for the final 30 minutes of the trading day.

The charts you see here are set to daily candles with the 30 minute Volume Distribution attached.  The small red arrow on the left side of the candle indicates the opening price of the day while the green arrow on the right is the closing price of that day, or the current price if the day has not finished.

When you look at the chart examples, you will notice that the zones where there has been the heaviest volume distribution can often act as price support or price resistance for the following candle.  I call this support or resistance as not to confuse it with demand and supply which are part of Online Trading Academy’s Core Strategy.  We can use this Volume Distribution support or resistance as an odds enhancer when it lines up with one of our supply or demand zones.

odds enhancers

Another way of using this analysis technique is to identify intraday targets when you are trading in the direction of the trend.  Students of Online Trading Academy know how to do proper multiple time frame analysis of their stocks.  If you are able to identify your targets on the larger time frame, you know where the smaller trends are likely to end and reverse which allow you to gain larger profits.

A trader who noticed the supply zone in Facebook may have shorted the stock with a target of the gap close to exit for a profit.

volume distribution as an odds enhancer

But the trader who used Volume Distribution on the daily chart could have made more money in their trade by holding on longer.

volume distribution chart

In the following QQQ intraday chart, the time frame is set to ten minutes per candle while the Volume Distribution is set to one minute. Often you will still see the heavy volume areas acting as a price support or resistance zone on intraday charts as well.

how to stay in the trade longer

To use the Volume Distribution tool on your charts in Tradestation:

  1. Right click on a chart
  2. Click on “Insert Analysis Technique”
  3. Then select the “Activity Bar”
  4. You can then format the interval the cells will use and the volume required to create a new cell

volume distribution setup

There are many more odds enhancers that you can use to trade like a professional.  Speak to an Educational Counselor at your local Online Trading Academy office and sign up for a Market Timing Course to learn more about the exciting opportunities that await you.

Brandon Wendell


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.