What Is Point of Control (POC) in Trading?
Unlock trading insights with Point of Control (POC). Understand how this volume profile anchor reveals key market activity and informs strategic decisions.
Point of Control (POC) stands as a significant concept in financial trading. It serves as a key component of volume profile analysis, offering a unique perspective on market dynamics. Understanding POC helps traders identify influential price levels and gauge market sentiment. It illuminates where substantial trading activity occurred, showing areas of market agreement. Traders integrate POC to make informed decisions about potential price movements.
Understanding Point of Control
The Point of Control (POC) represents the price level with the highest trading volume within a specified period, such as a day or week. It signifies the price level where buyers and sellers reached the most agreement or “fair value,” indicating a temporary market equilibrium. This area reflects where many market participants transacted.
Visually, POC is represented on a chart within a volume profile indicator as the longest horizontal bar. This histogram illustrates the total volume traded at each price point over the chosen timeframe. The volume profile provides this distribution, allowing traders to pinpoint the POC and other high-activity zones. The bar’s length corresponds to the volume of trades at that price.
Peter Steidlmayer, a former commodities trader, developed volume profile analysis, which includes the POC. This tool plots volume against price, showing where demand was highest and lowest. POC offers a focused indicator of market consensus, highlighting the most active price and indicating high liquidity.
Applying Point of Control in Trading
Traders utilize POC as a significant support or resistance level. When the market price is above POC, it can act as a strong support zone where buyers might re-enter. Conversely, if the price is below POC, it often functions as a resistance level, potentially halting upward movement. These levels are seen as decision points where market participants previously made significant trading decisions.
Price often retests or returns to the POC, a concept known as “reversion to the mean” or “gravitation.” This occurs because POC represents a price where substantial trading occurred, making it a magnetic area for price action. When price moves away from this high-volume area, it frequently revisits it, as market participants may perceive it as a “fair value” zone. This tendency offers opportunities for traders to anticipate price movements back towards the POC.
A shifting POC indicates changes in market sentiment, trends, or areas of market acceptance or rejection. A consistent upward shift in POC levels might suggest sustained buying pressure and a strengthening uptrend. Conversely, a falling POC indicates selling pressure and a potential downtrend. Dynamic POC options in charting software allow traders to observe how this point shifts, providing insights into evolving market interests.
POC is instrumental in identifying market balance and imbalance. A well-defined, bell-shaped volume profile with POC near the center often suggests a balanced market in consolidation. If price quickly moves away from POC after its formation, it can signal rejection of that price, indicating an imbalanced market and a potential new trend. Analyzing POC’s position relative to current price action provides clues: price consistently above POC indicates strength, while price below it may suggest weakness.
Complementary Volume Profile Concepts
Understanding other key concepts within volume profile analysis provides a comprehensive view of market structure and liquidity, complementing insights from POC. One such concept is the “Value Area” (VA). The Value Area represents the price range where the majority of trading activity occurred, typically encompassing 68-70% of the total volume traded around POC. This range identifies where the market perceives “fair value” for the asset during a period.
High Volume Nodes (HVNs) are price levels that exhibit significant, though not the highest, trading volume. These nodes represent areas where substantial buying and selling activity took place, often acting as strong support or resistance. HVNs are formed during consolidation where market participants found agreement on value. Price often slows down or consolidates when it approaches a previous HVN.
In contrast, Low Volume Nodes (LVNs) are price levels with little trading volume. These areas indicate a lack of interest from buyers and sellers, suggesting prices where the market has not established value. LVNs often signal areas of fast price movement, as there is minimal support or resistance to impede price action. Price tends to move quickly through these thinly traded zones.
By integrating these concepts with POC, traders gain a deeper understanding of market behavior. The combination of POC, Value Area, HVNs, and LVNs helps identify price levels, assess market sentiment, and anticipate potential price movements. This holistic approach to volume profile analysis allows for a nuanced interpretation of supply and demand dynamics within the market.