If you’ve spent some time on this site, you probably know I’m NOT a fan of RBR/DBD zones.
They’re not very reliable, price hardly ever pays attention to them, and overall, they just don’t work as well as their twins – RBD/DBR zones – to be really useful.
However, let’s not ignore the fact some RBR/DBD zones do actually work…
A few weeks back, I stumbled upon this neat little tool on Tradingview for finding high probability RBR/DBD zones that I’m excited to teach you about in today’s post.
Its name is… Volume Profile.
This tool makes finding strong RBR/DBD zones a piece of cake.
It unveils the prices at which high volume (which hints at banks buying and selling) entered the market. This means we can use it to verify if banks played a big part in creating a RBR/DBD zone. If they did, the zone is likely to cause a reversal.
Does that sound cool?
Let’s kick off by understanding what Volume Profile really is…
What Is Volume Profile And How Does It Work?
Important Note: To access Volume Profile on Tradingview, you need a pro or pro+ account, which means you’ve got to pay. But hey, there’s a loophole! You can test it for free by getting their 30-day trial. This includes all the fancy features paid users get.
But remember: don’t forget to quit the trial before the 30 days end or else you’ll find your bank balance a little lighter than usual, with no heads up!
Tradingview is pretty much a trading tool paradise, and one of the most awesome tools on the site is volume profile. It’s found under the “Indicators” tab.
What does Volume Profile do?
This tool takes the typical volume you see under the charts and puts it on the side, lining it up with the market prices instead of candlesticks. Plus, it breaks up the bars so you can tell if the volume came from buying or selling.
By focusing on price volume and not just candle volume, you get a way better picture of what’s happening in the market and where all the action happened.
As you might know, candle volume isn’t really a tell-all.
Sure, you can spot if a candle had high or low volume, which might be useful sometimes. But for everyday trading, that’s not super helpful.
Price volume, on the other hand, is extreamly useful.
With Volume Profile, you can spot key points and levels where significant volume entered the market, which helps predict where price might reverse or retrace in the future.
And what’s even cooler, the volume itself is more precise.
We’re looking at the total volume around a price, not just the volume of one or two candlesticks. It gives us a better sense of where the big guys (banks, hedge funds etc) have taken action in the market and where regular traders (like you and me) are trapped underwater.
So, here’s what the Volume Profile tool looks like.
The bars line up with prices instead of candles. They don’t line up exactly, they cover a small range of prices, but they lay horizontal to show the volume at each price.
The blue and orange bars show the buying and selling volume: blue for buying, orange for selling.
Don’t worry too much about the difference between them – you can see the exact difference by hovering over a bar and then looking at the numbers in the top left. What we really care about is if there was a lot of activity around certain prices (shown by big bars).
Whether that volume was buying or selling isn’t really a big deal. It doesn’t give us any extra hints about what the big guys were up to, so it doesn’t matter too much.
How To Open And Set Up The Volume Profile Tool
The Volume Profile tool is hiding under the “Indicators” tab on Tradingview. You can find it all the way down at the end of the indicator options list.
There are a few versions of this tool, but the one you want to stick with is the ‘Visible Range’ tool at the bottom. Why?
Well, it shows the volume according to all the candles currently on screen.
The other versions might not show the price volume or only show a tiny bit, which isn’t really helpful when you’re trying to find good RBR/DBD zones.
To open Volume Profile, just click on the button inside the indicators tab…
Now, like most tools, the Volume Profile doesn’t show up the way we need it to at first. The bars are way too big and some aren’t even visible on the chart.
So, you need to tweak the settings to make it work the right way.
To do this, right-click on the bars and select ‘Settings’ from the dropdown list.
Once the menu opens, head over to the Inputs tab, and change the following settings:
Row Size = 100
Value Area Volume = 100
Now hit the ‘Okay’ button, and head back to the chart…
Now, you should see more bars.
They should cover more of the chart, instead of just sticking around in the middle.
And guess what? You’re done!
You’re all set and ready to roll!
How To Use Volume Profile To Find RBR/DBD Zones
My biggest problem with RBR/DBD zones?
It’s not that they don’t work…
It’s that you can’t really tell with a lot of certainty which zones are going to make price reverse. Plus, since a lot of them don’t work, you can’t use them all the time because that could lead to… yup, you’re thinking right: lots of bad, avoidable losses.
However, Volume Profile can help us find many of the zones likely to work.
The tool shows where lots of trading took place in the market. Super high trading activity often means banks are getting involved. So, if a rally-base-rally or drop-base-drop zone has a lot of trading behind it, that suggests the banks might be interested in using the zone.
This could make it more likely for a price reversal to happen.
Take the zones below, for example…
Usually, we wouldn’t think these two zones are useful… because they’re rally-base-rally, they form in the middle of a move.
This suggests the banks didn’t enter large trades to create them.
But check out what happens when we add the volume profile…
Cool, right!
With the tool, we can see these zones have A LOT of trading behind them. This shows the banks created them by doing something major, like placing buy trades.
If price were to drop now, we would likely see a reversal or, at least, a small bounce back from these zones. Why? Because the banks wouldn’t want price to go below their buy trades… it would mean losing money.
Instead, they’d step in and enter more trades.
So, that’s how volume profile can help you find good RBR/DBD zones.
But how can you spot them yourself?
Well, here’s what you gotta do:
First, find the zones you want to check the trading volume for, then add the volume profile to the chart with the settings I mentioned earlier.
You can do this by right-clicking and choosing “Settings” to open up the menu.
The Volume Profile tool we’re using, called ‘Visible Range,’ shows how much trading is happening based on what you can currently see on the chart.
Think of it this way: If you zoom in or out or move the chart around, the amount of trading activity shown changes. It does this to include the new trading activity you can now see and leaves out what you can’t see anymore.
So to figure out the right trading volume for your zone, you need to adjust the chart to show your zone clearly.
To do this, click the ‘Reset Chart’ button (or hit alt-r on your keyboard), then zoom out four times.
Next, move the chart so the right side of the graph lines up with the current candle (the bar on the chart showing recent price movement), just like the picture below.
This should give you a good look at the trading volume around each zone.
If the zone is too far back to be displayed, move the chart until the left side lines up with where it formed, then note the volume from there. We want to keep the volume as recent as possible because it decreases over time, and this affects how strong the zone is.
Remember: we only want to trade the best RBR/DBD zones.
The last thing to do is check how high the volume is for the zone.
Sadly, I can’t give you a precise answer on what this should be – it’s too subjective. However, what you see above is about the least a zone should have to show a reversal might happen once price returns.
If the tallest bars are lower than this… it’s best to skip the zone.
You might still see some reversals, but mostly, price will either ignore the zone completely or just stall or retrace a bit before continuing in the same direction.
The Bottom Line
With Volume Profile, you now have a cool way to find high probability RBR/DBD zones. This doesn’t mean every zone with high volume will result in a price reversal – nothing’s certain in trading. But it will help you succeed more often, which should improve your results.
Make sure to read my “Why You Should Avoid Rally-Base-Rally/Drop-Base-Drop Zones” post to learn why RBR/DBD zones can be unreliable… if you haven’t done so already.
Such a valuable content my friend 🙂