The most interesting combination — and the most honest one
This is the most potentially interesting combination of profile and cluster analysis: an intraday reversal setup on the profile, combined with an entry point from the clusters. All on M5. It's interesting because a reversal always carries the biggest move potential, and for swing trading, the best entry spot is right after the first confirmation of a trend break.
But you need to remember that a good retest — one that lets you find the best price — doesn't always come. Some reversal setups on the profile fall apart, and it depends on the higher timeframe, on the context: if the higher TF is in an uptrend and we get a short setup, its potential is short-lived, it's risky, and it might not develop at all. It also happens that the market shifts from a trend into a range — in which case setups start breaking almost immediately, right after they form.
These are standard market risks. There's no getting away from them: they're simply part of the business, part of the losses a trader takes on in the process of trading. I picked this case on purpose — one with difficulties, not a picture-perfect showcase.
| What | How it's used in this lesson | Where it's from |
|---|---|---|
| Profile | the Volume Profile drawing object |
lesson 2.4 |
| Clusters | Footprint, Bid Ask mode |
lesson 2.2 |
| Value area | 40% — not the standard 70% |
lesson 2.4 |
As before: "buyer," "seller" — this is a model of volume's footprint, not names.
The profile: where the setup actually is
M5. On the left, a profile over the rising phase of the uptrend (from the low of the move to its top point); POC is at the top. The orange arrows below mark the support zone: the lower boundary is the extreme of the pullback, the upper one is the VAL. Red zones on the right: the upper one marks the spot of the first POC retest, the lower one is fresh seller volume (the value area of the counter-profile). On the right, a second profile: from the high to the current candle.
On the left is the rising phase of the uptrend. The profile is built from the low of the move to its top point: as I said in earlier lessons, a separate profile over an upward move is needed so you can clearly see which zones the buyer was active in. That's exactly what lets you spot the trend break and the break of this buyer. The largest volume is in the upper part, and the profile's POC is up there too.
But volume needs to be tied to the market structure it formed within. That's why I've marked the support zone with two orange arrows below: the lower boundary is the extreme of the pullback, the upper one is the VAL, the value area low.
These two levels form a single zone, and all the volume that formed up top should be tied to exactly this zone.
Why I'm spelling this out in so much detail. In our example, it might look like the reversal happened earlier: there's a cluster of volume up top, then a downward price impulse after it, and price retested the POC level — I built the upper red zone specifically to show where that first retest was. But at that moment, the support zone hadn't been broken.
⚠️ Important: You need confirmation from a break of the entire zone, not just the POC level of the range where the profile formed.
If any of you had considered selling on the POC test — in this case, it would have turned out to be a successful trade. But a risky one: there wasn't proper confirmation of the setup yet.
Now, after price moved down on an impulse and broke through the support zone, we build the profile a second time — this time from the high to the current candle — and we get additional new volume the seller is controlling within this downward move. At this point we have two confirmations and two zones to look for sells in. The closer zone is the more likely one: that's where the fresh seller volume is.
Clusters: the break and the start of the correction
M5, Footprint Bid Ask. The upper orange arrow marks the two candles that produced the breakout; the lower one marks the close near the low. The red zone marks the cluster the seller defended. The blue arrow marks the buyer taking back the initiative on the last candle.
Let's drill down to the clusters. The orange arrow pointing down marks the two candles that produced the breakout. After them, a third candle tried to move up but a cluster stopped it, plus there was a cluster of sell activity — it all ended with price closing near the low, further down. So there was an attempt to move up, but the reversal upward failed at the cluster level.
We mark this cluster as the current resistance zone the seller defended — that's what we'll use as our reference point going forward.
The second-to-last candle also tried to move up, unsuccessfully: the close is again below the cluster — a stopping candle. There are buyer clusters near the max-volume area, meaning the buyer was trying, but at this moment nothing's working out for them.
Then the most recent candle is under buyer pressure. In the clusters, there's an excess of aggressive buyers over sellers: the buyer put in the effort and won, price closes above the two clusters that formed on the second-to-last and third-to-last candles.
From this point on, you can say a correction upward is developing.
And since we have a short setup on the profile, we're waiting for a pullback to the zone, to find an entry point there with acceptable risk and good potential.
Right now the whole focus is on finding a good entry point: ideally you want both a good price (price reaching and testing the zone) and a pattern.
The choice you'll have to make
Getting ahead of myself, let me lay out the main takeaway of this lesson. Every trader has to make a choice, because price doesn't always test the good zone — the one where selling is most favorable.
If you see a reversal that should produce a good move and you want to take part in it, you have three paths:
- Wait for a good price. The risk is not getting one and missing the whole move.
- Cherry-pick patterns on the sell side. This significantly raises your chances of participating, but it also brings the risk that one, two, or three false patterns form — and you take several stop-losses before price actually moves. Plus there's always the risk the setup breaks: in that case, the losing streak leads to nothing.
- Wait for a setup rather than a pattern. The stop sits behind the volume, not behind a cluster group: a wider stop, but you'll get stopped out less often. Often the best of the three options.
If you take a pattern trade, take it with a plan: once it reaches 1:1, trim part of it — but don't rush to move to breakeven. You've already reduced potential losses; the important thing now is to hold the position.
⚠️ Important: But distinguish what's actually breaking down. A string of losing patterns while hunting for an entry isn't itself a reason to abandon the scenario: as long as the higher timeframe hasn't broken and the trend is still valid, with no opposing setup, that's a normal working situation, part of the business. What should raise a flag is something else. If setups on the higher timeframe start firing off in alternating directions one after another — that's a sign of a range, and pausing there is the right call. And if the lower timeframe delivers 3–6 losing patterns in a row for every entry attempt — it's probably been set too small and is generating excess signals: bump up the timeframe (for example, from M1 to M5), so you get fewer signals, and each one carries more weight.
Second: when you're hunting for local patterns with small stop-losses, this widens your risk-to-reward ratio. In my experience, a trend move with this approach delivers something around 1-to-10 to 1-to-20. But the ratio is only half the story. The other half is how often you actually make it to the trend. Five stops followed by a 1-to-10 win is a net positive; five stops followed by a broken setup is a net negative, and that will happen too. We calculate this in the risk lesson, in Module 4.
⚠️ Important: What matters here is something else: each attempt has to cost a fixed, known-in-advance amount — that's what keeps a series of them from wiping you out.
How to calculate position size from the stop — also Module 4. You need to understand this idea now, because from here on we'll be following price action and clusters, and situations that look like patterns will keep popping up. I'll point them out as they come. Some of them would have produced a loss.
The first two patterns
M5. A candle that could have been mistaken for a short pattern: a close right on the edge, breaking the previous candle's POC, but price didn't close below the cluster group. White marks the buyer's cluster group at the base of the impulse candle. Green marks the buyer's support zone.
A long pattern from buyers appeared — three candles. On the third candle from the current one, there was an attempt to break through the buyer clusters and drag them lower. That candle's close was right on the edge; effectively, in the moment, it broke the previous candle's POC level, and it could have looked like a short pattern.
Although if you look at the cluster group in the previous two candles, you can see price didn't close below that group. So the situation isn't especially clear-cut. But theoretically this pattern could have been considered — in an effort not to miss a swing short.
⚠️ Important: And if you'd sold on this bar, the stop-loss would have been behind the pattern, and it would have been the first loss in the attempt to pick up a swing short.
Next, the second-to-last candle has an obviously strong buyer cluster at its base, and the impulsive move up shows the buyer is still in control of price. The following candle is a stopping candle with seller initiative: the clusters show a sell-side excess, sellers tried to attack, but nothing came of it. The support level got attacked twice, and both times unsuccessfully — the buyer is holding.
M5. The last two candles inside the orange box — two absorptions at the top: aggressive buyers couldn't continue the rally, and sellers started attacking at the high.
The rally continues: after another test of the green support zone with its cluster of aggressive buyers, we get an impulse up and hold above. But the last two candles show signs of buyer pressure weakening — you can see two absorptions at the top. The clusters are mixed: there are aggressive buyers who couldn't continue the rally, and there are aggressive sellers who started attacking at the high.
This is the first hint that a sell pattern might form soon.
The current candle could also be considered a possible sell: before it there was a cluster, price moved down and away from it and held below, and the next candle tested it, attacked it, and failed again. This would have been the second pattern, with a stop behind that cluster group, a short one. Plus we've already reached the wide resistance zone: the test we were waiting for happened — price got to an acceptable spot.
But the signal isn't the strongest. The last cluster group that gave a clearly good impulse and that got defended is the green support zone.
To speak with confidence, we need to see price move up, break through the cluster block at the high, and then drop back below it.
For now, there's no clear sign the buyer tried to go higher and lost. The fight is still going on, and there could be a pullback into the green zone, followed by another bounce.
A drawn-out correction
M5. The second-to-last candle put out a wick and swept the sellers' stops; the pin bar's close sits inside the cluster. The current candle moved up again.
Two more candles. The second-to-last formed a wick again and swept the stop-losses of sellers who might have been selling off the cluster group. This is exactly the kind of candle I mentioned: it would have been good to see a move up, then a close below the cluster group afterward. But the pin bar's close sits inside the cluster, and the next candle went up again and closed at the upper boundary of the group.
Signs of buyer weakness are there, stopping candles are there — but there's no strong seller dynamic: no clusters broken through, no closes below levels that would show the seller moving into profit and dragging the buyer into loss.
At the top cluster there's a large buyer accumulation — it looks like they got trapped there; meanwhile, sellers are being actively pushed out of the market, probably having their stops swept. It's a drawn-out correction, where every new upward impulse makes a new high and then closes lower.
M5. Orange box — two stopping candles. Price moves deeper for a test of the zone. Blue at the bottom marks a strong local support level, with an arrow pointing up from it.
Price moves deeper to test the zone — that's good for us: the deeper it goes, the better the price and the bigger the potential of a sell here. On the second-to-last and third-to-last candles — two stopping candles, and the second-to-last one, at the high, shows intense seller aggression: sellers tried to attack, but the whole group of sales got broken, and price moved up on an impulse again and held above. At the top there's again a large cluster group, mostly buying — the buyer was trying to take control of the market, there were more buyers than aggressive sellers, but in terms of result, price didn't move further: that aggression didn't produce a result.
And our strong support level stays down below, marked with the blue zone and the arrow pointing up.
Remember the rule about stopping volume from the last lesson: it's mirrored, and when price finally does break through such a level and holds beyond it, it acts as strong support.
Right now this is the current local support, and it's very important that price break it. After the break, we'll get unambiguous signals: the seller has moved into profit, and the buyer has started losing and no longer holds the zones they held before.
Climax: the move ran off without us
M5. The breakout candle moves down volatilely, using up a significant chunk of the potential. On the right, two red zones mark spots for limit sells.
The resolution. The good news: overall, we were right — the correction was headed toward a test of the zone, and we were right to look for sells there. The bad news: a good pattern for the entry never showed up. And when the breakout candle finally appeared, it moved down with high volatility and used up a significant chunk of the potential we could have counted on if we'd entered somewhere up top and held.
So entering at the current price, at this bar's close, makes no sense — purely from a math standpoint. First, the stop would be too wide. Second, the potential here is already capped by the lower cluster.
⚠️ Important: Here's a live illustration of the rule: potential gets assessed before entry, and if it doesn't outweigh the risk, there's no trade.
What's left is waiting for a good price again. There are two options:
- Place limit sell orders at the two red zones: both could get tested, and if you consider entering around these zones, the risk turns out relatively favorable, the stop small, especially if the entry is off the upper boundary.
- Wait for a proper new sell pattern, ideally also with a pullback up, and enter on the next attempt with an adequate stop.
Re-entry: waiting for a pattern
M5. The second-to-last candle closes near the cluster, a couple of ticks below that candle's POC. The next one is a rising candle, closing above the previous cluster and above the current POC.
The second-to-last candle closes near the cluster, just a couple of ticks below that candle's POC. Using this candle as an entry point isn't great: there's no proper stop behind it, and we still haven't gotten a pullback to the zone. Technically it's an attempt by the seller to take back control, but from a math and money standpoint, this kind of price action isn't favorable.
Then the next candle is a rising one, and it closes above the previous cluster and above the current POC. We see the close land near a large cluster — meaning a new situation and a new strong cluster have formed, one we can lean on going forward.
If the next candle turns out bearish, closes below the cluster, and shows short-side dynamics — that's the one you could consider as a sell pattern.
M5. The buyer takes back the initiative: excess at the POC, an upward impulse sweeps stuck sellers' stops and tests the zone we need — but the candle doesn't give a pattern.
Two more candles. The seller couldn't hold below the clusters, the buyer is still taking back the initiative: on the second-to-last candle there's a strong excess of aggressive buying, including at the POC — the buyer's controlling price. It moves up, above the previous large cluster of aggressive sellers. On the last candle, the upward impulse starts sweeping the stops of stuck sellers, and this candle tested exactly the zone we need. But the candle itself didn't give a pattern: the close is near a large cluster, even higher. Technically, the price action here favors the buyers, and the excess in the clusters shows buyers from below dominated and won.
But we do get an acceptable price and a new cluster. Let's keep watching.
The signal candle
M5. The second-to-last candle is the signal candle: moving below a large cluster of sellers, closing below the POC where buyers fought to the very end.
The second-to-last candle is, in essence, the signal candle. By its dynamics, we get a move below a large cluster of sellers: the seller, in this upward move, has finally started winning, price has clearly moved into their favor. And all this against the backdrop of testing a good price.
Plus this candle closes below the POC — and it's exactly at this POC that buyers fought to the very end but couldn't hold price. The buyer lost. We can see the seller starting to win, and against that background there's a test of the levels we needed: the market made an acceptable correction.
💡 Tip: This second-to-last candle is exactly the one you could use for selling.
What this case teaches
M5, the overall picture: a reversal and setup on the profile → a correction (blue arrow) → a retest of the zone → a downward move in several waves.
The overall picture. After we saw the reversal and setup on the profile, there was a correction, there was a retest of the zone we needed, and after that a downward move started developing in two waves — and further on, past the right edge of this screenshot, the downtrend strengthened.
I picked this situation on purpose: it shows the difficulties a trader runs into while hunting for an entry point. Several false patterns formed here, ones that looked like good spots. And notice — they really did offer good, small risk and could have served as entry points. But they didn't lead to the move we needed, unlike the example from the last lesson. Plus this is exactly the situation where, during the correction, we never managed to get a good entry point, and price went on to use up its potential afterward.
But here's what's worth noting: if you stay true to your analysis, understand where the dynamic is heading, and keep following price action and the clusters — you get a chance to re-enter, also with acceptable risk, as happened in this example, and still end up in a position in the direction of the trend.
And remember: there's no such thing as a holy-grail system or method. The market always adapts to liquidity, to the participants buying or selling right now. That's why you'll always run into false sweeps and sharp moves into profit with no chance to enter on a pattern. It matters to the large participants that you don't enter alongside them and don't get in the way of their move — so every effort gets made to squeeze the opposite side out of the market.
What to keep in mind
- A reversal on the profile is a break of the entire zone, not a POC test. Selling on a POC test can work, but there's no confirmation of the setup yet.
- Tie volume to structure. The support zone = the extreme of the pullback + VAL; volume up top by itself decides nothing.
- After the break, build the counter-profile — from the high to the current candle. Fresh seller volume gives a second, more likely zone to look for sells.
- You won't always get a good price. Either you wait for a retest and risk missing the move, or you cherry-pick patterns and risk a series of stop-outs. The third option is waiting for a setup instead of a pattern: costs more in stop width, costs less in nerves.
- Know what's actually breaking down. A series of losing patterns during a live trend is normal. A range is signaled by setups on the higher timeframe firing in alternating directions (that's when you pause). A stream of 3–6 losing patterns on every attempt is a sign the lower timeframe is set too small: bump it up (M1 → M5).
- Potential gets assessed before entry. If the move already ran off on a volatile candle, entering at market no longer makes sense: the stop is big, potential is capped by the nearest cluster.
- Missed an entry? Don't drop the analysis. As long as the dynamic hasn't changed, the market often gives you a second chance to re-enter with acceptable risk.
- There's no holy grail. False patterns aren't a broken method, they're part of the business; their cost is limited to your per-trade risk.
Coming up: We can now build both scenarios — trend and reversal — out of the profile and the clusters. Next we'll add one more layer of context and see what changes when the scenario isn't read from a single profile alone.