Today, I want to provide a glimpse of a very easy, but at the same time incredibly powerful trading tool: POC, Point of Control. This idea dawned on me via a profitable trade that I did yesterday on DAX, German Equity Future.
So here I intend to simplify it down in order to show clearly how to exploit this volume tool. Obviously, this is only a small piece of the big picture, but it is a good point to start.
For those who are not familiar with it, POC represents price with the highest number of volume or lots traded during a specific time period. To add more context to the terminology, many traders usually call it PVP, PEAK OF VOLUME AT PRICE, but there is no difference regarding the meaning. Volume traders focus on POC in order to find out a powerful level for their trading, as it can be reckoned as “fair value” of an underlying period.
For today, what I want to highlight is that previous days’ POCs can be considered strong support or resistance levels at which price is likely to “feel” and “react” when it trades very close to them. The point is that the market tends to test “relevant price” where a huge quantity of volume is traded.
So we should pay attention to these levels, especially the POC of the day before, in order to make trading decisions. We should be ready to exploit possible swing of price at these “relevant” price levels, those that are inferred by Volume analysis.
Now, let’s see what happened yesterday on DAX future and how to exploit POC’s information:
On 6/30 DAX made up its daily POC at 9847 price level (red line on chart). Furthermore, another price level has to be underlined: 9840 price level (blue line), second levels for volumes after only POC.
On 7/1 DAX twice tested the area 9847-9840 price levels where prices, which are described above, were located, and then moved away keeping its movements.
As result of, the easy approach of POC provided two long entries that proved very profitable for intraday trading. I took only the first trade since I am not at my desk in the afternoon: I entered long at 9842 price levels with a strict stop loss gaining around 37 points. Below you’ll see the intraday chart of DAX with VWAP and its standard deviations.
To perform this analysis, you can use Volume Profile, which is available on the Ninjatrader platform in its default indicators. Here at Littlefish we’re working on a professional platform for Order Flow and Volume Trading, so stay tuned for further updates.
The most important thing is to have a very good price feed. We suggest Kinetick, which Ninjatrader recommends, but others work as well.
To conclude, be sure to stay tuned for further updates, where I will show you further insights into the real application of our Order Flow and Volume trading strategies.