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Divergence Trading w/Volume Profile .... and Trader Pyschology
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Loading...This thread is specifically for these two types of trades and nothing else.
The way I've approached these trades involves the following list of trading aspects:
1. Volume histogram
2. Volume Profile
3. VWAP studies
4. VSA (Volume Spread Analysis) candle recognition
5. Your preferred momentum indicator of choice (I use a MACD 5,13,1 setting)
6. Trendlines
Divergence and reversion go hand in hand. Divergence occurs while price and a momentum indicator conflict.
1. Positive divergence = Price making lower low or double bottom while indicator is making higher lows
2. Negative divergence = Price making higher highs or double top while indicator is making lower highs
When divergence occurs it is the markets way of trying to show you an imbalance in supply/demand at that time. They can be traded on both trend days and range days ..... however the trend days are the ones you have to approach very carefully so as to not get caught trying to pick up pennies on a railroad track.
Reversion is the theory that once price hits an extreme, it will gravitate back to areas where there is the most congestion i.e. "the most agreed upon price by buyers and sellers" ...... In order to identify those areas, we take note of volume POC's (Points of Control) and VWAP. POC is the "mode" basically the spot where volume "most often occurs" on that particular time frame. VWAP is the average price based on volume.
The reason I'm bringing this trading style up, is it's not always easy to diagnose the market in the early part of the session. Seems like a real pain in the ass to miss, since that is where most of the liquidity occurs during the day. However, there are viable trades after that, which I will attempt to show you.
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