Volume Profile Strategy: Profiting from Naked VPOC Levels

In this article we’re sharing a simple yet highly effective trading strategy that leverages Naked VPOC levels. This approach is ideal for day traders looking for structured, data-driven ways to enter the market with confidence.

[A video version of this strategy is available, so you can follow along visually as we dive into this powerful technique.]

What Is Volume Profile? The Core of This Strategy

Understanding Volume Profile is essential to making the most of this strategy. Think of Volume Profile as a way to see where trading activity is concentrated at different price levels over a specific time period. Typical charts will track price and volume by time, Volume Profile shows the volume, or amount, of trades at each price level. This reveals “high-interest” zones on a chart — areas where significant buying and selling occurred, often becoming strong support or resistance levels.

Key Concept: VPOC and Naked VPOC

In a Volume Profile, the VPOC (Volume Point of Control) is the price level within a session where the most trading volume occurred. It’s a clear indicator of interest and often reflects a level where buyers and sellers meet in balance. Now, when a session ends and price hasn’t revisited the VPOC in future sessions, it’s termed a Naked VPOC. These Naked VPOC levels can act as strong price magnets, and when revisited, they often serve as significant support or resistance zones.

Strategy Overview: Profiting from Naked VPOC Bounces

The trigger for this trade strategy is an exact test of a Naked VPOC level. For this, you’ll need a Session Volume Profile indicator that displays Naked VPOC levels. Here, we’re using the ChartSpots Session Volume Profile indicator, which you can try out with a fully functional trial period.

In the example chart, we’re looking at the Regular Trading Hours session volume profile for ES futures. Here, the VPOC is shown as a red line, while the Naked VPOC appears as a dashed red line. When the session closes, the VPOC line resets, but the Naked VPOC continues across future sessions until price returns to that level. This indicator keeps it strictly session-based, so overnight price action doesn’t impact these levels.

Trading Signal: We’re watching for moments when price hits a Naked VPOC line and uses it as an exact support or resistance level. For instance, if price bounces right off the Naked VPOC, that’s often a signal that short-term traders are capitalizing on that level. These traders usually aren’t holding positions long-term, which creates an opportunity for us to fade this bounce.

Entry and Exit Strategy for Naked VPOC Trades

To take advantage of this setup, we need to carefully time our entry and exit points:

1. Entry Strategy: Once the price hits a Naked VPOC and starts to lose momentum after bouncing, this is your potential entry. A great tool for assessing this is the Anchored VWAP (Volume Weighted Average Price). By anchoring it from the bounce point, you can see the average price based on volume from that specific level. If the price drops below the Anchored VWAP, you’ve got an entry signal. Alternatively, you could start scaling in if price extends above this line.
2. Exit Strategy: For an exit, consider setting a target at or slightly below the initial Naked VPOC level where the bounce began. Another option is to adjust the Anchored VWAP to the intermediate high and exit as momentum fades. This method allows you to scale out as the trade moves in your favor.

Be sure to define your risk and set stop losses in advance. This approach works best when you know your limits.

How Often Does This Setup Occur?

This particular setup doesn’t appear daily, but it’s frequent enough to be a valuable addition to your trading toolkit. For example, in the examined month on ES futures (Sept-Oct 2024), there were around six instances of exact bounces from Naked VPOCs.

Ready to Implement This Strategy?

To get started, download the Session Volume Profile indicator and the Anchored VWAP indicator used in this strategy.

Looking for a more in depth advice on how to build, test and implement a new strategy? Our Market Mastery Masterclass has a complete module to do just that!

Using this strategy, you’ll be able to make more informed, data-driven decisions in your trading. Remember to check out the video at the top of this article if you want to see each step in action. And for more insights into advanced trading strategies, indicators, and market stats, explore the other resources available here at ChartSpots.