Auction Theory & Value Area
Traditional volume tells you when trades happened; Volume Profile reveals where institutional capital actually traded. Learn to locate Point of Control (POC), Value Area bounds, and Low Volume rejection pockets.
The single price level where the highest number of shares or contracts changed hands during the chosen time profile. POC acts as a massive gravitational magnet. In range-bound markets, price always pulls back toward the POC.
• Virgin POC (vPOC): A prior day/week POC that price has not touched since. Often acts as high-probability take-profit targets.
Statistically derived from standard deviation: 70% of all traded volume occurs between the Value Area High (VAH) and Value Area Low (VAL).
• If price opens outside the previous day's Value Area and then accepts back inside for two consecutive 30-min bars, there is an 80% statistical probability it will traverse the entire Value Area to the opposite side.
HVNs represent price regions where buyers and sellers reached broad agreement. Price consolidates and spends significant time here. HVNs act as thick cushions and major support/resistance barriers.
• Expect sluggish price movement and slower momentum when trading inside an HVN.
LVNs represent prices where the auction moved so rapidly that very few transactions took place. Because there is no historical liquidity to slow it down, price will slice straight through an LVN with fast velocity or reject violently upon approach.
• Use LVNs as frictionless runways for breakout trades, or hard stop-loss buffers.
The 2 Core Volume Profile Strategies
When market conditions are balanced (no high-impact news), fade touches at VAH and VAL:
- Wait for price to test VAL and form a bullish rejection wick.
- Buy with Target 1 at POC, Target 2 at VAH.
- Stop Loss just outside VAL in the LVN pocket.
When new catalyst information enters the market and price rejects the entire Value Area:
- Wait for an hourly candle to close cleanly outside VAH with expanding volume.
- Enter on the shallow pullback to the top of VAH (now converted to support).
- Target the next higher timeframe LVN or prior swing high.