medium · Volume Profile Analysis profile-anatomy
Following a major news release, the market spikes lower (Wave 1), then partially retraces as spreads normalize (Wave 2). A trader observes a 'Support/Resistance Flip' where a prior HVN that was broken now acts as resistance.
What is the logic behind this 'flip'?
- The 'Open Interest' at the level has doubled, meaning the level is twice as strong as it was before the break.
- The HVN is a 'Fair Value' level, so both buyers and sellers agree to stop trading there and wait for the next news.
- Institutional algorithms automatically 'fade' any move that returns to a high-volume area following a news spike.
- Traders who were 'long' at the HVN are now underwater and sell to break even when price returns, creating net supply.
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