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Value Area Trading Strategy
by TradingStrategyGuides | Last updated Feb 11, 2021 | Advanced Training, All
Strategies, Indicator Strategies, Indicators, Stock Trading Strategies | 0
comments

Learn the Value Area trading strategy if you want to master how institutional
traders nd support and resistance levels. You can use the Value Area trading rules
to day trade any market and increase your pro tability. In this guide, we’re going to
teach you how to use the value areas as well as how to identify where the real big
institutional traders are buying and selling.

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welcomes you. Make sure you hit the subscribe button, so you get your Free Trading
Strategy every week directly into your email box.

One of the most important things you should track in trading after the price is
VOLUME.

So, why is volume so important?

Let’s start with the basic: volume represents the amount of buying and selling that
goes on. At the end of the day, the price of any asset classes (forex currencies,
stocks, futures, options, cryptocurrencies, etc.) is a supply and demand trading.

However, not all the volume is important, because only institutional buying and
selling pressure can move the price of a stock. And, here is where the Volume Pro le
strategy also is known as the Market Pro le indicator comes to rescue us.

More speci cally, we’re interested in using the Value Are in Volume Pro le.

Let’s start with the Volume Pro le Value Area de nition and continue with how Value
Area trading really works.

Table of Contents

1 What is the Value Area Trading?

2 How to Calculate Value Area:

3 How to Apply Volume Pro les on TradingView

4 What are the Value Area Trading Rules?

5 How to Use the 80% Rule:

6 Value Area Trading Strategy

7 Step Number #1

8 Step Number #2

9 Value Area Trading Tips

10 Final Words – Value Area Trading

What is the Value Area Trading?

In volume pro le analysis, the value area measures where the most buying and
selling volume took place.

More, the volume pro le theory says that 70% of all asset prices will cluster around
the value area.

Why 70%?

Because 70% is a rough approximation of one standard deviation on either side of

the mean.
In other words, the value area levels highlight where 70% of the entire volume
occurred during a particular trading session.

For example, if one pro le individual bar displays a volume of 10, it means that 7 out
of 10 shares that traded on a stock occurred within the value area levels. Value area
is the price range where 70% of the trading volume occurred.

The Volume Pro le value is constructed of 3 parts:

Value Area High VAH.

Value Area Low VAL.
Point of Control VPOC.

The Point of Control Trading Strategy (POC) shows the single price level at which the
most amount of volume was traded. While the value area low shows the lowest price
level within the value area and the value area high shows the highest price level
within the value area.

See the Volume Pro le chart below:

Note* The Value Area Volume is by default set at 70%.

Moving forward, let’s see the value area calculation process.

This will give you a better understanding of how valuable the value area levels can
be.

How to Calculate Value Area:

Even though you get the value area levels served on a silver platter, it’s still important
to know how the volume pro le blocks are calculated.

Without further ado, these are the step-by-step value area calculation:

1. Take the total buy and sell volume within a trading day and multiply it by 0.7 to
determine 70% of the total volume.
2. Record the greatest volume block aka the point of control (POC).
3. Add the total volume of the rst two blocks above the POC.
4. Add the total volume of the rst two blocks below the POC.
5. Add to the POC the total volume, which is the greatest between the two volumes
found at points 3 and 4.
6. Repeat steps 3 and 4 adding the larger of the two numbers to the Value Area.
7. Repeat the process until your Value Area slightly surpasses the number found in
step 1.
8. The highest row within the Value Area represents the Value Area High (VAH) while
the lowest row within the Value Area represents the Value Area Low (VAL).

Depending on the trading platform and stockbroker used, professional traders will
have to pay anywhere between $50 and up to $500 to get access to the online
volume pro le.

So, if you don’t have money to spare for such things right now, you can always
calculate them by hand.

Let’s see how to use volume pro le with TradingView and see how to actually put
volume pro le on TradingView.

How to Apply Volume Pro les on

TradingView
Important note: In order to apply the Volume Pro les on TradingView, you
need to have a Pro level subscription or higher.

The Volume Pro les tool is such a valuable indicator that most professional trading
platforms will charge you a fee to use it.
First and foremost, we’re starting with an intraday chart aka the 15-minute time
frame.

See the stock chart below:

Note* The volume pro les work on any intraday time frame.

To apply volume pro les on your TradingView charts, go to the Volume Pro le tab
and select “Session Volume.”

The Volume Pro les will be plotted individually for each session. When the market
closes and then reopens you have a new volume pro le.

The volume will be placed on a horizontal scale rather than at the bottom of your
charts where the standard volume indicator is displayed.

The Volume Pro le is superior to the standard volume.

The horizontal volume is based on price and it’s not based on time. The time-based
volume charts are only good to tell you the movement of the trend. On the other
hand, the Volume Pro les tell you where there are institutional buying and selling or
where there are large blocks of money traded and at what price.

This is very helpful in drawing institutional support and resistance levels.

Now, in order to make the value area levels be more visible, go to the Volume Pro le
settings and under the “Style” tab change the color for:
 Value Area up.
Value Area down.

Note* The Value Area up and Value Area down will show you the buying and
selling in the 70% area. So, everything that is purple and orange highlights
where 70% of the entire volume occurred.

Here are the top 3 things, why you should use the Value Area trading:

Plots on a vertical scale – gives you a speci c price level where the most volume
has occurred.
You gain a lot more information.
Spot institutional support and resistance levels.

While trading the value area can be extremely pro table executing a trade is another
story.

So, here are some value area trading rules you need to know so you turn the odds
in your favor.
What are the Value Area Trading Rules?
Here is the reason why you want to know why 70% of the volume is occurring at a
certain price level:

Large traders and institutional traders will be executing heavy volume. Wherever you
see institutional trading activity, we‘re going to see an accumulation of large orders
because they tend to be bigger traders.

This is a kind of self-ful lling prophecy because where there’s a large volume, there’s
going to be big support and resistance levels.

Wherever you see a thin volume, you’ll notice that the price moves through it very
quickly.

Here is the lesson to learn about thin volume:

The small volume areas indicate a lack of trading activity. What typically happens
when the price moves from the value area levels and go into these thin volume areas
the price will travel really quickly to the next value area.

Here are some other value area trading rules we use in our trading:

For example, if we’re short, we use thin volume areas for the stop loss
techniques placement.

We want to get stopped out when the price goes from value area levels to thin
volume levels because there is no volume and there is a big change for the price to
move further against you since there is no resistance to stop the price from rallying.

We’re going to teach you some secrets on how to improve trading using the value
area and the 80% rule.

How to Use the 80% Rule:

What is the 80% rule?

The 80% rule asserts that if the stock price opens or move above/below the value
area, but then returns to the value area twice for two half-hour periods, then we
have an 80% probability of the value area to be lled.

For example, if the stock price action stays in the value area for 3 consecutive bars
(assuming we’re using a 15-minute stock chart), and if the following bar opens inside
the value area, the market has been for two half-periods (4 x 15-minute bars equal
two half-periods) inside the value area.

This is the moment to watch for the 80% rule to get into play.

See the volume pro le chart below:

With this information alone, you can build a day trading strategy that has an 80%
winning rate.

A good strategy you can build around the value area is to try to capture a ll-up of
the value area.

We can build two di erent trading scenarios:

1. If the stock price opens above the value area, but then falls in the value area for
two consecutive half-periods, there is an 80% probability of the market lling the
value area.
2. If the stock price opens below the value area, but then rallies in the value area for
two consecutive half-periods, there is an 80% probability of the market lling the
value area.

Since the Value Area gives us valuable information about where the smart buying is
interested to buy and sell, we can derive the best day trading strategies to take
advantage of these ndings.

See below:
Value Area Trading Strategy
We have built our value area trading strategy with the idea to take advantage of the
fast intraday price movements. Check out our guide on successful intraday
strategies.

For this, we’re going to use the Point of Control (POC) levels, which are like a magnet
and they tend to pull the price near that POC levels.

The point of control simply shows the highest volume traded inside the value area.

The POC levels can act as good support and resistance levels:

POC levels on the upside act as good resistance levels.

POC levels on the downside act as good support levels.

Note* Right-click on the volume pro le indicator, go to Settings – Inputs and

click on the “Extend POC Right.” This will extend the POC levels from prior
trading days to the right side of the screen.

So, here is our favorite value area trading setup:

Step Number #1
The current day point of control needs to align with yesterday’s point of control.

As a rule of thumb, we can only allow 2 volume blocks to separate the two POC.

The closer the POCs are, the better.

Once this condition is satis ed, it’s time to decide which direction to take the trade.

See below:

Step Number #2
If the stock is spending more time above the POC, then it’s a sign it will act as support
and you want to buy. However, if the stock spends more time below the POC, it’s a
sign it will act as resistance and you want to short that stock.

See the value area chart below:

You can sell once we close below the current day’s POC (using the 15-minute chart).

Your protective stop loss can be placed above the current day high while you can exit
the trade by the end of the day.

Now, since the value area is a versatile tool and can be used in many innovative
ways, below we’re going to share with you more tips.

Value Area Trading Tips

We can gain a lot of useful information from the value area.

With that in mind, here are some valuable volume pro les trading tips:

If the stock price opens above/below the value area and continues to stay
above/below this indicative of institutional buying/selling. As a trader, you should
expect the price to follow through.
If the stock price opens above the value area and then it falls back inside the value
area this is a strong bearish signal.
If the stock price opens below the value area and then it rallies back inside the
value area this is a strong bullish signal.

If you understand all the di erent ways the volume pro le works, you can be better
prepared to face any di cult situation that the markets may throw at you.

Final Words – Value Area Trading

In summary, if you want to escape the high degree of inherent randomness that
comes with the price of any tradable instrument, you should look into value area
trading. The Volume Pro le is simply the footprint of smart money and you want to
follow these footsteps because they can impact the price.

With the value area trading rules, you can gauge the market direction every single
day. Once you start using the value area trading strategy and you get used to it, you’ll
see day trading with di erent eyes.

Thank you for reading!

We also recommend learning about other trading strategies that have worked in
2020.

Feel free to leave any comments below, we do read them all and will respond.

Also, please give this strategy a 5 star if you enjoyed it!

(3 votes, average: 4.33 out of 5)

Also check out Tim Black teaching the Value Area Trading Strategy below!

Value Area Trading Strategy | Strategy of the Week Tim Bla…

Bla…

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TradingStrategyGuides

Author at Trading Strategy Guides | Website

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With over 50+ years of combined trading experience, Trading Strategy Guides
o ers trading guides and resources to educate traders in all walks of life and
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rules to follow.

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