medium · Volume Profile Analysis trading-strategies
A volume profile trader uses the 'Value Area Rule' (VAR) to decide whether a breakout from balance is genuine. The prior 5-day composite Value Area spans 5,580 to 5,620. Today, price opens at 5,625 — above the composite VAH — and holds above 5,620 for the first hour. By lunch, the developing session VAL is at 5,622 — entirely above the composite VAH.
What is the VAR signal and what is the cautionary condition?
- The VAR signal is bullish, since value is accepting above the composite VAH, but caution that one session of acceptance is not yet multi-day confirmation
- The VAR signal reads bearish, because opening above the composite VAH always means the market is overextended and is sure to revert straight to the prior POC
- The Value Area Rule applies only to single-session profiles and therefore cannot be evaluated against a multi-day composite value area at all
- A single session of value migration above the VAH is by itself fully sufficient to add the maximum position size for a multi-week continuation move
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