Summary
- The Point of Control (PoC) is the price level at which the greatest number of contracts are traded during a given trading period. In other words, it is the price point where buyers and sellers are most evenly matched.
- The PoC indicator is used to find market support and resistance areas, which can be used to make trading decisions.
- The PoC indicator works best with other technical indicators such as moving average and Fibonacci retracement levels.
What Is Point of Control?
Point of Control (PoC) is the price level at which the greatest number of contracts have been traded within a volume profile. A volume profile is a charting tool that displays the amount of volume traded and the overall trading activity at each specific price level during a given period.
The volume profile gives investors an idea of the price actions in the market at each point in time and where the support and resistance lines are in the market. This helps investors pinpoint buying and selling activity, in order to make investment decisions.
A Point of Control Diagram (Source: Korbs)
The volume profile includes several components, which include:
- Point of Control (PoC): The price level at which the greatest number of contracts have been traded.
- Value Area: The area between the PoC and VAH (Value Area High). It is the area where 70% of the volume is traded.
- Profile High: The highest price level traded within the profile.
- Profile Low: The lowest price level traded within the profile.
- Value Area High (VAH): The highest price level within the value area.
- Value Area Low (VAL): The lowest price level within the value area.
The point of control is the most important price level within the volume profile. It represents the price at which the majority of trading activity has occurred. In other words, it is the price level with the most liquidity and the highest traded volume.
The PoC is often represented as a horizontal line on a volume profile. PoC is important because it can be used to identify the overall market trend and potential reversals.
Quantum Trading Volume Point of Control Indicator (VPoC)
High and low volume nodes (Source: Korbs)
The quantum trading volume point of control indicator is also known as the VPoC indicator. It is a potent tool that day and futures traders often use to find potential turning points in the market.
The volume point of control indicator is based on the theory of price action and order flow, and it combines the aspects of volume, price, and time into a visual indicator.
The VPoC is calculated by taking the highest volume traded at each price level and constructing a histogram. The following are some key pieces of information in the volume point of control (VPoC) charts:
- High-volume Nodes (HVN): These are areas where price levels have a higher than average volume. Overall, a lot of volume is traded at these levels and they don’t have to be within the value area. These nodes can also serve as a strong area of support or resistance on the chart. Often, HVNs show a strong level of price acceptance by the market, leading to price congestion. Typically, the market will eventually reverse from these high volume levels.
- Low-volume Nodes (LVN): These are areas where price levels are lower than average volume i.e. not as much volume is traded at these levels. LVNs often signify a price rejection, and the market temporarily slows down or pauses trading in these areas. The market quickly moves through these levels and continues building on the current market sentiment which could be bullish or bearish.
The VPoC line represents the point where the market reaches an agreement. It is usually at the end of the sentiment right before a reversal begins. If the VPoC line is above the price action, the market sentiment will likely be bearish.
On the other hand, if the VPoC line is below the price action, the market sentiment is more likely to be bullish.
When used in conjunction with other technical indicators, the VPoC indicator can provide a complete picture of market conditions and help traders make more informed decisions.
How to Use Point of Control in Day Trading
There are several ways to use Point of control (PoC) in trading. Here are some point of control trading strategies that crypto investors can use:
Support and Resistance Levels
The PoC can be used to identify potential support and resistance levels. These are areas where the market is likely to pause or reverse. However, it is worth noting that the PoC indicator uses a reactive method to identify these levels.
This means that while proactive methods like moving averages and trend lines use the current price action and analysis to estimate and predict future price movements, reactive methods like the PoC indicator depend on past price movements and volume to figure out the support and resistance levels.
In other words, the PoC indicator is a lagging indicator, which means it will not signal a trade until after the price has already moved. As such, the PoC indicator is best used in conjunction with other indicators and technical analysis tools. Some common indicators that are used with the PoC indicator include the moving average, Fibonacci retracement levels, and support and resistance levels.
The PoC indicator can be used in any time frame but is most commonly used in the daily and weekly time frames.
When using the PoC indicator, it is important to look for areas where the indicator is diverging from the price action. This can be a signal that a reversal is about to take place.
Typically, if a price level is located very close to the bottom of the profile and heavily supports the buy side, this is a good indication of a support level. On the other hand, if a price level is located very close to the top of the profile which heavily supports the sell side, this is an indication of a strong resistance level.
Overnight High and Low
This is another great point of control trading strategy for crypto investing. The PoC line can be heavily skewed to either the top or bottom of a value profile which can tell the investor what to look out for.
For example, if the PoC line is skewed to the bottom of the value profile, and the new price opens up below that point of control, the overnight low can be expected to be eliminated. Typically, this happens because the price opens up at a lower point and immediately goes back to the overnight low price, essentially taking it out.
This pattern is very important to observe as it may not always take the same shape. Most times, the PoC line may be farther from the bottom, providing the trader with a wider range to work with.
Also, the price may not always go straight to the overnight low immediately after opening up. Rather, the price may open up and initially start moving away from the low before eventually moving towards its direction and eliminating it. When this happens, it creates a great opportunity for investors to get accustomed to the PoC pattern and use the overnight low as a goal and vice versa.
This is also the case when the PoC is skewed to the top of the value profile and the new price opens up above that point of control. When this happens, the overnight high can also be expected to be removed.
When the PoC shapes up in this way, it creates two main opportunities for traders. First, create an opportunity for a great trade, and secondly, it helps traders avoid bad trades. It is a good idea to wait for a trade to get long until the overnight low gets eliminated.
PoC Location
Another point of control trading strategy involves understanding where the PoC line is located within the value area. It is important to observe if the PoC is skewed to the top or to the bottom of the value area. This can help the investor confirm long or short trades or if they should be careful with longs or shorts.
For example, if the PoC is skewed towards the value area high, investors should be wary of putting in a short trade in that situation. At the same time, they can be more confident in holding longs in that situation.
Also, when the PoC line is skewed towards the value area high, this should be seen as a red flag for investors holding a short, but this is a good sign for investors holding a long.
If the point of control is in the center, this is a good sign of balance and stability, and there isn’t much to worry about. The market will likely remain in the same price action and continue to move sideways or within the same price action.
However, if the PoC is skewed to the bottom or value area low, investors should be careful with longs and more confident with shorts.
It is important to note that if a new price opens inside the previous day’s value, investors should look forward to a return to the previous PoC. On the other hand, if the new price opens up outside the range of the value area, it is less likely for the new point of control to return to the position of the previous point of control. Also, if the price remains balanced and the value area stays consistent, a return to the PoC is very likely.
While the PoC works great as a target, it is not suitable to be used as an entry point.
Point of Control in Futures Trading
Point of Control (PoC) is an important indicator that helps traders determine the overall market sentiment. It is especially useful in futures trading as it can be used to determine the market’s directional bias and potential support and resistance levels. This means that if investors can apply the point of control trading strategy correctly, they may be able to estimate the future price direction of a cryptocurrency.
Where Did Point of Control Come From?
The point of control indicator was first developed by Peter Steidlmayer, a former commodities trader. He is known for his innovative work in market analysis and his contributions to the field of technical analysis. Steidlmayer’s work has helped shape the way traders look at market data and aided with the development of new trading strategies.
Steidlmayer worked in the Chicago Board of Trade (CBOT) and was a member of their board of directors and is also the author of “Steidlmayer On Markets: A New Approach to Trading”.
Conclusion
The point of control is a powerful indicator that investors can use in day trading and futures trading. By understanding how to identify and trade the point of control, traders can increase their chances of success. Like all technical indicators, however, the point of control is not a guarantee of success. It takes practice and experience for traders to effectively use the point of control to their advantage and improve their trading results.
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