The setups I include on this blog are used in conjunction with the 3/10macd and the criteria I ascribe to it as a way to alert me to an existing condition of price. The key concept to take away from this blog is that I try to anticipate what will happen on the higher time frame by using a faster time frame to trigger the trade setup. I do not trade a "system" I use two indicators to clue me in to price conditions. Please read the Disclaimer located in the sidebar of this site. I can be contacted via email at
I am always open to questions, comments, or suggestions on how to improve this blog.

Thursday, May 12, 2011

Low Volume Node

As Volume Profile goes, Low Volume Nodes (LVN) are important levels to keep in mind for prospective targets or entries.  If throughout the day a dynamic move occurs during the auction process leaving a rejection of price we want to remember that price in case we come back to test it later.  This LVN can be witnessed simply by looking at a chart of the completed days auction and noticing where price broke out from and noticing the volume and whether price ever re-tested that level again throughout the day.  Yesterday was a perfect example of that in the SPY.
  First eye-ball the chart and look for areas which began a dynamic move out of a range, especially if that dynamic move was never really tested:

Yesterday's auction left us with a few breakout areas which were never fully tested:

Take a look at the volume in these areas, all levels of low volume, perhaps b/c orders may be placed below the base as triggers for entry.  Whatever the reason, higher prices are being rejected hence the discounting process (sell-off). 
Giving us these price levels:

Looking closer to maybe tweak our levels we can see these low volume points as price begins to break out quickly followed by higher volume:
And now a look at today's auction with the LVN levels retained, all price has left to do is auction the prior day's gap:

And the point of all this??  Even without volume profile charting capabilities (or even 10-second bar charts for that matter) you can still find levels of importance to target and/or fade.   As LVN's represent areas of price rejection, moves at or into these levels can be quick.  So to start with try finding areas where price broke out (on any time frame) often these are good areas to target or fade.

On the other side of this coin is the HVN (High Volume Node).  These are more obvious as you can quickly eyeball a chart and pick out levels of price overlap to tell you that there was acceptance built into that area, and if price is perceived as fair at a level, like it is in an HVN, then it may take time (chop) to auction higher/lower out of these levels.  Perhaps I'm doing a disservice to Volume Profilers by simply highlighting areas of price overlap and calling them HVN's.
My intention is to give an example of how one might pick out levels of potential support/resistance or places in which price may stall without having access to special charting software or even for on-the-fly live trading.  I'm well aware that just because price spends a lot of time in an area doesn't mean it will have high volume node.  In which case, perhaps I should just call them a POC (Points of Control) or acceptance range.

Often an acceptance range from the previous day can act as resistance/support coming into the following day.  Notice how the late afternoon session yesterday acted as overhead resistance today, while this morning's 10:45 pullback found support at the acceptance range from the early morning:
However, POC/acceptance range and HVN do tend to be close enough.  Yesterday was a double-distribution day, so we have two large nodes of acceptance at two ends of the trading range, which is evident in the bar chart above with the highlighted rectangles in the early morning and later afternoon:

The gist:
  - Look for breakout points, as price likes to return to these levels to see if there is unfinished business to do.
  - Where once was congestion (price acceptance) there may be again

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