Introduction to Volume profile

Nov 19, 2022

If you have been in the market for some time, you may have heard of a study called the “Volume profile”. Today we are going to take a deeper look at volume profile, along with a few example strategies. This post will also lay the groundwork for future posts about more advanced volume profile topics.

Please remember this is an educational post to help all of our members better understand concepts used in trading or investing. This in no way promotes a particular style of trading!

The post will shed some light on the following topics:
→ What is volume profile?
→ Difference between traditional volume indicator and volume profile
→ Volume profile terminology
→ Different types of volume profiles
→ Example strategy

👉 What is Volume profile?

Volume Profile is an advanced charting study that displays trading activity at specific price levels over a specified time period. On the chart, it plots a horizontal histogram to reveal significant price levels based on volume.

Volume Profile, in essence, takes the total volume traded at a specific price level during the specified time period and divides it into either buy volume or sell volume, making that information easily visible to the trader.

👉 Difference between volume profile and traditional volume indicator
The core difference between the traditional volume indicator and the volume profile is how they consider volume with respect to time and price.

The traditional volume indicator plots histograms at specific times, without giving any relevance to the price levels. On the other hand, the volume profile gives importance to price levels without emphasizing on the time scale.



👉 Volume profile terminology

■ Point of Control (POC) – The price level for the time period with the highest traded volume.
■ Profile High – The highest reached price level during the specified time period.
■ Profile Low – The lowest reached price level during the specified time period.
■ Value Area (VA) – The range of price levels in which a specified percentage of all volume was traded during the time period. Typically, this percentage is set to 70% however it is up to the trader’s discretion.
■ Value Area High (VAH) – The highest price level within the value area.
■ Value Area Low (VAL) – The lowest price level within the value area.
■ High Volume Nodes (HVN) – Peaks in volume around a price level.
■ Low Volume Nodes (HVN) – Valleys in volume around a price level.

👉 Different types of volume profiles



TradingView currently provides 5 types of volume profiles. These are:
1. Auto anchored - Specifies the anchor of the volume profile calculation, i.e. how often the volume profile recalculates and where it starts.



2. Fixed range - Builds a profile using the custom anchors provided by the user.



3. Periodic - Sets the period for which the indicator builds volume profile, one profile for each new period.



4. Session (Normal and HD) - SVP displays a profile for all the market action that occurs within a session. If set to "All" (default), the indicator will consider the pre-market, main trading session and post-market as one session.



5. Visible range - Builds a profile considering all the visible data on the screen.



Please note that the Volume Profile is a paid-only feature that can be accessed by subscribing to one of our paid plans. If you need to upgrade your account, be sure to check out our Black Friday sale. You can get up to 60% off on subscriptions.

Example strategy

Just like with most other tools or studies, Volume Profile has a number of uses. There are many trading strategies out there using Volume Profile as a key component. Below are the basics of one such strategy which is based on comparing the current day’s opening price to the previous day’s Volume Profile.

👉 If the current day opens above the previous day’s value area (but still below the Profile High)
A sample setup is to look for the price to retrace back toward the Point of Control and then proceed to rise (the direction of the day’s open). Therefore during the retracement to the Point of Control, there is a buying opportunity.



👉 If the current day opens below the previous day’s value area (but still above the Profile Low)
Some traders may look for price to retrace back towards the Point of Control and then proceed to fall (the direction of the day’s open). Therefore during the retracement to the Point of Control, there is a selling opportunity.



👉 If the current day’s opening price is completely outside of the previous day’s profile (above the Profile High or below the Profile Low)
In general, this is seen as a possible runner in the direction of the opening price relative to the previous day’s profile range but different traders may look at it differently.



Thanks for reading! As we mentioned before, this isn't trading advice, but rather information about a tool that many traders use. Hope this was helpful!

See you all next week. 🙂
– Team TradingView

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