Original subtitles

The fundamental basis for the application of volume profile principles

premise that the market has a memory and tends to repeat its behavior.

Certain zones are expected to behave in the same way in the future as they have

in the past.

In other words, if a leveler zone acted as a sign of acceptance because a large

amount of volume was traded, it is expected that trading at those price

will be generated again in the future.

This concept is crucial because it implicitly suggests that the equilibrium

zones, those zones where a large number of contracts have been exchanged, will

have a certain magnetism and will generate price attraction towards that

On the other hand, if there were price levels that showed a certain refusal to

negotiate, as evidenced by a low volume, this lack of interest on the part of

buyers and sellers to negotiate at those price levels will influence the price.

so that in the future, those same price levels will again show this refusal to

execute a large number of transactions.

As we will see below, there are two ways in which the price can represent this

rejection on the chart, through rapid V -turns, known as traps or false

breakouts, and through rapid displacement movements.

The volume profile takes the principles of auction theory and puts them into

practice to visualize zones of interest on the chart.

Interest is simply measured by the activity generated in a particular zone,

that activity is identified by the volume traded.

The more volume traded, the more prominent the horizontal bar will be

price level.

This tool will therefore make it easier for us to identify areas of greater and

lesser interest and help us to evaluate the price in relation to them to

determine whether an acceptance or rejection is taking place.

One caution to keep in mind is that the market's memory is mainly short -term.

This means that more recent trading zones are more important than older

When the price initiates an imbalance, the first zone to be considered is the

most immediate previous equilibrium zone.

The more time the price is spent away from a particular acceptance area, the

less significance it will have.

If we have no other reference, it will still be useful to evaluate it, but it

important to be aware that the most immediate equilibrium zones will most

be the ones the market will look for first.

as they are the ones that best represent the value at the moment.

This is pure logic. A price range or lateralization results from a market

equilibrium. It is a context in which the valuations of the participants are

very similar, and therefore there are rotations at the extremes of these

These valuations are subject to the current fundamental conditions, so small

changes in these conditions will result in imbalance movements toward former

trading zones that are relatively close.

and larger fundamental changes will result in imbalances toward zones that

at trading levels farther from the current one.

In this chart, we see an example of this concept in Bitcoin.

The market reached the higher price levels, possibly accompanied by positive

news and the greed of participants to miss the move.

Once the market entered a sideways environment, buyers and sellers began to

trade comfortably, as evidenced by this rotation up and down.

This is because both groups, at an aggregate level, believed that the true

of the asset was above these levels.

But as we saw in the auction theory, this efficiency can break down when new

information emerges that creates disagreement among the participants.

In this case, the new information has a negative sentiment and causes a change

in the perceptions and valuations of the agents, who now believe that price and

value do not coincide.

This latest information introduced into the market whether in the form of news,

rumors, or any other element that has the ability to change the fundamental

valuation of the asset, has caused the value to decrease, and therefore traders

begin to close long positions and open short positions.

Together, these auctions can cause the markets to fall.

When the bearish imbalance begins after the distribution, the most likely

scenario is that the price will visit the trading area at the bottom.

And this is what happens.

The stop of the move occurs at the previous sideways zone, which was the

that gave rise to the last upward move.

Here, we have a complete price cycle with the accumulation, the bullish move,

the distribution, and the bearish move.

And once the market is trading at levels where buyers and sellers again agree

that these are fair prices, another lateralization begins, another rotation

produces these ups and downs.

Once again, we are in a context of equilibrium.

which is maintained until new information appears that changes the

the agents and generates the imbalance to one side or the other, depending on

the sentiment of that information.

In this case, it is now breaking through its top, possibly led by some good news

for the Bitcoin ecosystem.

As we know, the next step after the imbalance is to try to determine whether

have an acceptance or rejection of that imbalance.

Acceptance is evidenced by effective breaks where the price continues to move

that direction.

while rejections are false breaks or traps that generate a reversal of the

movement.

Once again, the market successfully imbalances to the upside, creating this

acceptance pattern, which is nothing more than a bullish breakout move plus

test, before continuing the move to the upside, where the market rebalances and

another rotation is created by the exchange between buyers and sellers.

This is the dynamics of the market. The point to note is that the upward

movement stops again at the previous distribution.

in the previous sideways zone proving this magnetism and attraction on the

price.

But before this last action, the market took a brief pause in what would be the

post -breakout test move.

At first glance, it appears that there is no previous sideways zone that could

have acted magnetically on the price.

But if you look at the distribution profile, there are two well -identified

-volume trading zones.

These zones are known as high -volume nodes, and we will talk about them

The key is that the pause generated higher trading and some rotation in the

price because this trading zone had already been previously established as a

zone of interest as shown with the volume node.

And again, we are back to the same situation.

If the market becomes unbalanced at the bottom of the last structure, the first

stop would be set at the first area immediately below.

And if it continues to fall, the lower area would be targeted.

And as we can see, it has reached the two structures below, creating a short

pause when it interacts with the more immediate one, and a further

lateralization when it reaches the lower structure zone.

As we will see later, one of the uses we will give to the identification of

structures will be to establish targets, based on the premise that the old

trading zones exert a certain magnetism on the price, attracting it towards

them. But the story doesn't end there.

If we zoom out and move away from what we are observing, we see that the market

continued to fall after the above, and where did it stop?

The market fell with some force until it found an old equilibrium zone, at which

point sellers began to unwind their positions and buyers began to appear.

Behavior that on an aggregate level resulted in the halt of the bearish

and the subsequent lateralization of the market.

As we can see, In environments where the market has historical references above

or below the current price, the most normal thing is that it uses these old

equilibrium zones to stop the trend movements that may occur and find a new

equilibrium among market participants.