Volume Price Trading: What to Know and How to Get Started

Ruben Leija

Volume price trading is a popular trading strategy that allows traders and investors to make better decisions.

What is Volume Price Trading, Exactly?

Volume price trading is when a trader analyzes the price of a stock, and the volume to figure which direction the price of a stock may be heading.

Imagine you’re going to the movie theater and you see a long line for the movie you want to watch. The longer the line is, the more likely the movie is really that good, right? That’s sort of like how volume price trading works, the higher the volume their is on a given price the likely other investors and traders like to purchase the stock at that area.

On the other hand, if you see a bunch of people leaving the movie early or with a dissatisfied face, you might want to skip watching that movie. Similar to volume price trading, if you see volume of traders or investors selling a stock, it can mean that the price of a stock may continue a downtrend.

How Does Volume Price Trading Work?

Volume Profile (VP) is a technical indicator that displays the trading activity from a specified time period at specified price levels. The indicator will plot a histogram chart to display dominant and significant price levels based on volume.

On TradingView, the volume price profile will also show you a line called Point of Control (POC). This line is where the biggest volume happen on that given price level.

When the price of a stock goes above the Point of Control it can be an indicator that the stock will be on an uptrend. If the price of a stock goes below the Point of Control is may show that the stock will be on a downtrend.

It’s also important to note that the volume profile indicator shows faded bars – depending on the side, it can indicate weakness in buying or selling pressure.

Pros and Cons

Pros

Volume price provides important price levels.
Volume price help traders identify potential reversals.

Cons

Volume price is not 100% accurate.
Volume price trading is not novice friendly

How to Trade Volume Price Strategy

It’s important to note that this is just a simple example, and that actual trading decisions should be based on other factors. Another important note is that this strategy is not guarantee to work because the stock market has so many more variables that can produce a false signal – so traders, be cautious and use other the volume price trading strategy with other technical indicators to make a decision.

Step 1: Find a Stock Price that is Near Strong Volume Strength

First, you want to find a that is near the Point of Control (POC). Let’s examine the Roblox (RBLX) on the weekly timeframe.

If we analyze the Roblox stock, you can see that the price is sitting in area of low volume. If you’re using the volume price trading strategy then the indicator is telling the trader that it’s not a good time to be bullish.

The volume price trading strategy is all about patients, and it rewards the one’s who are. The indicator to be bullish on Roblox is when the price reaches near the Point of Control which is around the $37 price range.

Step 2: Enter a Trade

Once the price of a stock has reached the Point of Control, the trader should analyze how the price behaves – does the price want to stay above or go below the line.

If the market conditions seem trending to the upside, then you may want to go long. If the market is looking bearish, you may want to short the stock.

Step 3: Exit the Trade

Depending if you’re in longs or shorts, you may want to exit your trade when the price goes above or below the Point of Control or if the price is entering a low volume area.

But exiting a trade really depends on the traders risk management strategy, risk tolerance, technical indicators, and if they’re trading equity or options.

If you’re trading options, the trader should take profit quickly if the expiration is short. If the option contract expiration date is a month or more out, the trader may swing the trade.

To Sum It Up

Volume price is a useful tool to analyze strong price levels, and to have an idea of where reversal may occur. But volume price trading is not guarantee and should be combined with other technical indicators to make the trader well-informed.