Volume Profile: Technical Analysis Of Volume

by OTC Financial | Last Updated: 12 months ago
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What is Volume Profile?

Volume Profile is a charting feature that shows the traded volume of an asset over time.

Volume profile is a technical analysis of volume and shows a histogram of amounts bought and sold at specific price levels.

A horizontal histogram indicates the traded volume amount at each price level, while the vertical axis represents the stock price.

Volume Profile is an indicator showing the price range where the stock was most traded.

It takes the given range and shows the bigger the bar where more volume was traded at that price.

The more time the price of the stock consolidates sideways in one area, the volume profile indicator plots the point at which trading activity is most concentrated.

This helps to determine where traders are buying and selling.

The most important feature of the volume profile is showing the most traded prices at certain time frames.

Volume Profile Terminologies

Terminologies associated with volume profile:

Point Of Control (POC)

  • Point Of Control shows the highest traded volume during a specific price time frame

Profile High (PH)

  • Profile High shows the volume profile bar of where the security reached the highest price level

Profile Low (PL)

  • Profile Low shows the volume profile bar of where the security reached the lowest price level

Value Area (VA)

  • Value Area shows the volume profile bars where the majority of volume traded for the specific time frame
  • A Value Area or VA is where 70% of the volume in the total volume profile is located
  • The default value area on your volume profile charts typically shows 70 percent of the value area, however, traders can adjust this setting to increase or decrease the value area percentage

Value Area High (VAH)

  • Value Area High shows the volume profile bars where the price of the security reached the highest price level of the Value Area.

Value Area Low (VAL)

  • Value Area Low shows the volume profile bars where the price of the security reached the lowest price level

High Volume Node (HVN)

High Volume Node (HVN) is one of the most important features of the volume profile.

It shows the area with the most traded price for a particular time frame. HVNs are much longer than other volume profile bars around them.

The HVN changes over time, so it is important to understand the basic knowledge about this concept.

  • Each volume profile bar represents the average trading volume for that time frame. High Volume Nodes (HVNs) are significantly higher and much longer bars as compared to the other bars around them
  • High Volume Nodes are much more important in understanding the overall picture of an asset’s trading activity since they represent significant volumes which in turn can reflect support and resistance areas
  • Consolidation and sideways price action typically occurs when a securities price reaches a High Volume Node

Low Volume Node (LVN)

LVN is less than the average trading volume as there is not much volume traded.

LVN is the inverse of the high volume node, which has very little volume transacted in these areas.

  • A low-volume node is a volume profile bar that has not seen significant volume in the corresponding time frame
  • There are no HVNs in this region, only LVNs which shows where the price of the security has traded the least
  • A Low Volume Node can turn into a High Volume Node if there is an increase in trading activity over time. Price consolidates and moves sideways for a long time in this one area

Trading With Volume Profile (3 Different Uses)

The three most common uses of Volume Profile by traders in charting include Visible Range, Fixed Range, and Session Volume.

The Volume Profile indicator shows the price where the security was most traded. The more volume traded, the bigger the Volume Profile bar will be.

How To Trade Volume Profile

Visible Range

  • Visible Range displays volume profile bars for the candlesticks presently showing on your trading chart. As you zoom in or zoom out on your chart the Visible Range Volume Profile will adjust accordingly to the price level showing on your trading chart.

Fixed Range

  • To give a better understanding Fixed Range is used for a specific amount of candlesticks. For example, if you are trying to review past trading data and how it affected the price you can use Fixed Range to select and narrow down only the candlesticks/days you wish to see Volume Profile for.

Session Volume

  • Session Volume is taken into consideration by using only the days closing price of the Volume Profile chart you are looking at and combining this measurement based on the current time frame you are reviewing.

Volume Profile Books

There are Volume Profile Books that explain Volume Profile in depth including strategies and how to use Volume Profile for day trading and swing trading.

A Complete Guide To Volume Price Analysis
By Anna Coulling

Volume Profile: The Insider’s Guide To Trading
By Trader Dale

Types Of Technical Indicators (Most Used)

Final Thoughts On Volume Profile Trading Strategy

Volume Profile Indicator is very important when trading. Properly interpreting the Volume Profile indicator can help reduce risk and improve profits.

It also suggests a market sentiment shift from buyers to sellers, or sellers to buyers and helps traders know where the market is.

Additionally, Volume Profile measures the concentration of trading volume in the given time frame.

Without Volume Profile bars, it would be difficult to understand where the true support and resistance levels are for a specific trade idea.

We hope you enjoyed this article going over the basics of volume profile, how to interpret it, and how to use it to analyze charts more effectively.

If you need to setup Volume Profile Indicator on your charts feel free to continue reading our other article on setting up Volume Profile Indicator here.

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