Understanding Thin Zones
For those who know me, know that I love the Volume Profile and I use it to kinetically confirm trades each day.
That’s why it’s important that I take some time to educate all of my closers become familiar with the key terms you need to know when trading with me.
So, before we dive into it, here’s a quick recap of the parts that make up the Volume Profile:
● The Point of Control (POC)
● Thin zones
● The value area and its support and resistance lines
Now, let’s get into it – today I want to review thin zones.
Thin Zones are areas of low volume within a value area (a value area is where 60% of volume is traded in the time period we are looking at). These areas can serve as strong support or resistance areas, especially when a stock is trying to put in some basing action.
There are times though, when price can zoom right through thin zones, especially if the stock chart we are reviewing has good momentum when it reaches a thin zone area.
So, having a great guide is always helpful when it comes to learning…
And lucky for YOU… that guide is ME!
Below you will see a chart for a stock that Kenny Glick and I frequently look at in my Trade the Close room.
I circled the thin zones where can see that they do serve as support and resistance areas of price.
First, let’s look at the top and lower areas that I circled.
You can see the top circled thin zone acted as support, then the support failed and that area turned into resistance.
The lower circled thin zone shows very similar price action- first showing support of price and then resistance to it.
This thin zone action is very helpful in my trading because it is based on volume (or the lack of it in this case).
Volume is a very important tool when you know how to use it as I do. I use it to show potential support and resistance levels for entries and exits.Thin zones are super helpful for predicting where those levels will be. This will help your trades too.
Thin Zones are a great tool to use along with the other parts of my Volume Profile. Remember, the volume profile and its parts are all volume based.
Volume is where the action is baby!!!
Now, let me show you another example of how I use Thin Zones:
In this day chart example, I drew a line in a thin zone.
You can see it has served as price support for quite some time. This gives me some good price targets when, with the rest of my Volume Profile tools, I am looking to find awesome setups for us all.
Volume is activity (big or thin) – that’s what I look for when I am searching for the best chart’s and what the best will do going forward.
August 19 2022
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