Original subtitles

So a fade from the value area high or

value area low is a mean reversion type of

play that we look for. So according to the

stats, 70% of the time the markets are in

a range bound condition, meaning this is

the most likely type of setup you will

come across on a day to day basis. So if

we're looking at the value high and value

low, the value area high is the upper

boundary of the value area, with the value

area low being the lower boundary of the

value area. And a fade is simply trading

against the direction of a breakout

attempt at these levels, expecting price

to return back into value or revert back

to the mean. So if we look on the chart on

the right here, this is an example of a

simple value area high fade. You can see

that both times here on the example on the

right that price attempted to trade

outside of the value area high. It was

rejected and came back into the value area

the second time traveling back closer

towards the point of control. That is a

simple example of a fade off the value

area high. And then here we have a nice

example of price coming down. Here's your

930 New York open. You can see that price

actually came off the value area high here

as well on that first attempt. Came down.

But then here off the value area low,

dipped below value area low, being quickly

bought up back towards the point of

control and then back into the highs. That

is our example of a value area low fade.

Now why does this work? This works for a

few reasons. Number one, auction market

theory. The value area highs and the value

area lows are the edges of where the

majority of trading has occurred, aka fair

value. So when price pokes outside these

areas, what the market is doing is testing

higher or lower to see if it can attract

new business, aka buyers on the upside and

sellers on the downside. And if that test

fails, so no new buyers above value high

or no new sellers below value low, then

the market naturally will return to value

or to the opposite end of the spectrum.

The second reason it works is because of

lack of volume or lack of participants. So

outside the value area high or value low,

you'll often enter low volume areas where

participation is extremely thin. And thin

volume means fewer traders defending that

area. Therefore, price moves back into the

high volume zone where most trade

occurred. Because again, just like in an

auction, if the price reaches a point

where neither side is willing to

participate much, then prices will

naturally return back to where

participation was most popular. The third

reason is mean reversion tendencies. In

balanced markets, price tends to oscillate

around point of control rather than

sustain directional movement. Again, 70%

of the time, the markets are in a range

-bound type of condition. So 70% of the

time, the market will prefer to stay

within a value area rather than seeking

new value above or below value area highs

and lows. So a value area high and value

area low fade capitalizes on this natural

rotation, rotating back to the mean of the

auction or back into fair value, aka point

of control. And lastly, order flow

psychology. Breakouts naturally require

fuel or new buyers above value highs, new

sellers below value lows in order for

price to continue in that direction. If

that fuel doesn't appear quickly, the

traders who initiated the breakout will

start to exit their positions seeing that

there is no one else there willing to

support the trade idea long or short for a

breakout. So they will exit their

positions naturally creating pressure back

towards value. So that's an order flow

concept where if you think about price and

the way price moves, in order for price to

move up, you need more buyers. So if you

reach premium levels at value area highs

and there are no buyers to continue to

push price higher, naturally it's going to

fall back into value and vice versa. So

this is the first type of trade setup that

we start to look for. And this is the most

common one that you'll take even when you

build up with multiple profiles, looking

for added confluences. Trading the value

highs and value lows will be the most

common trade setup that you will come

across in your time as a volume profile

trader. So understanding why this works

and why this happens is important to know

so that you know you're not just trading

off some random theory, off some

subjective interpretation of price, but

you're trading based on order flow and the

natural laws of how an auction works. So

we'll get into how to add more context

around this trade setup in the next

module. But for now, understand what's

happening when price approaches value

highs and value lows and understand what

to anticipate based on where price is,

either value low or value high. And the

first thing to do is to anticipate a fade

from these levels. So let's move into the

next trade variation, which is a value

area high, value area low breakaway, which

is the opposite of a fade. If you leave

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Thank you.