Volume Profile Charts

Volume Profile displays the trading activity over a specific time period at certain price levels.

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Volume Profile displays the trading activity over a specific time period at certain price levels. Meaning, it shows what was bought and sold at those current levels, and displays them in a histogram on the side of your chart. Volume Profile allows you to see the zones of maximum trading interest, and as a consequence, the “true” support/resistance levels.

Volume Profile is an extremely valuable technical analysis tool that is used by traders everywhere. The key to Volume Profile’s continued relevancy is its versatility. It is a charting tool that truly does have a wide array of uses. Unlike many other studies, there is little to no debate about Volume Profile’s usefulness. The data that is provided by Volume Profile is indisputable, leaving it to the trader to find new and creative ways to use it. Even though in its simplest form, it is a great reactive method for discovering traditional support and resistance areas, traders are still coming up with ways to chart the indicator in predicative or proactive ways. Consider the trading strategy example given earlier in the article. Being able to compare a real-time event (the current day’s open) with historical events (the previous day’s volume profile) and make a trading decision based on the relationship is a great example of this.

Volume Profile Data Type #

GoCharting offers two kinds of Volume Profile:

• Candlle Data Volume Profile – Volume Profile built using 1min, 5min 30min etc candle data depedning on the timeframe chosen. This indicator is part of the FREE plan
• Tick Data Volume Profile – Volume Profile built using tick data and is independent of the time frame in the candle. This indicator is part of the GOLD PLAN

The can be chosen from the Indicators Menu

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Types of Volume Profile in GoCharting #

GoCharting platform offers three types of Volume profiles:

• Left/Rigth Composite Volume Profile – Volume Profile on the visible part of the chart
• Session Profile – Volume Profile over every session (usually 1Day). For example, set the step period to 1 hour, and you will see profiles with uniform hourly steps on the graph. By changing the data types, you will see the distribution of the trading volume, the executed trades, as well as the delta for each hour of the trading session.
• Custom or Fixed Range Profile – Volume Profile over custom defined fixed range

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Major Components of a Volume Profile #

There are a lot of various settings, but the most intersting are:

• Value Area (VA) — shows the price area with 70% of trading activity for the specified time range. The value of 70% is set by default, but the user can change it at his 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.
• POC Ray — extends the level of maximum volume (Point of Control) to the price scale
• Show Total — shows/hides the total number under certain profile

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Calculation of Value Area #

How to Calculate Value Area (VA) 

1. Determine the total volume traded in the profile (total buys and sells).
2. Take the number of total buys and sells and multiply it by .7 to determine what number is 70 percent of the total buys and sells. (70% is a typical example however any percentage can be used by the trader).
3. Start at the POC (The row in the profile with the greatest total volume) and record its total volume number. The POC will be the first profile row added to the Value Area.
4. Now look at the one rows above the POC (the initial value area) and add the total volume of both.
5. Now look at the two rows beneath the POC (the initial value area) and add the total volume of both.
6. Determine which of the total volume numbers is larger and add it to the total volume number of the POC found in step 3.
7. Repeat steps 4 and 5 adding the larger of the two numbers to the Value Area.
8. Once the total volume of your Value Area matches or slightly surpasses the number found in step 2, the Value Area has been determined.
9. The highest row within the Value Area will be your Value Area High (VAH) and the lowest row within the Value Area will be your Value Area Low (VAL).

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Key Use Cases #

Support and Resistance Levels #

The first thing that most traders will use volume profile for is identifying basic support and resistance levels. It is important to note that using Volume Profile as an identifier for support and resistance levels is a reactive method. This means that unlike proactive methods (such as trend lines and moving averages) which are based on current price action and analysis to predict future price movements, reactive methods rely on past price movements and volume behavior. Reactive methods can be useful in applying meaning or significance to price levels where the market has already visited. Basic technical analysis has shown that a support level is a price level which will support a price on its way down and a resistance level is a price level which will resist price on its way up. Therefore, one can conclude that a price level near the bottom of the profile which heavily favors the buy side in terms of volume is a good indication of a support level. The opposite is also true. A price level near the top of the profile which heavily favors sell side volume is a good indication of a resistance level.

Volume Nodes #

High Volume Nodes (HVN) are peaks in volume at or around a price level. HVN can be seen as an indicator of a period of consolidation. Usually there is a great deal of activity on both the buy and sell side and the market stays at that price level for a great deal of time compared to other levels in the profile. This can imply a “fair value area” for the asset. When price approaches a previous HVN (or fair value area) a sustained period of sideways movement is expected. The market is less likely immediately break through that price.

Low Volume Nodes (LVN) are the opposite. They are valleys (or significant drops) in volume at or around a price level. Low Volume Nodes are usually a result of a breakout rally or a breakdown. During a rally or a breakdown, there will typically be an initial burst of volume and then a significant drop off. The drop off can imply an “unfair value area” for the asset. When price approaches a previous LVN (or unfair value area), the market is much more likely to rally through or bounce off of that price level. Because it is seen as an unfair value area, the market will not spend as much time there compared to some other levels in the profile

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Settings #

The settings of the Volume Profile vary depending on whether the underlying data is Candle Data or Tick Data.

In case of Volume Profile (Tick Data) the height of the bars is determined by the Tick Multiplier in Settings Dialogue while in case of Volume Profile (Candle Data), the height of the bars id determined by the TPO value

The remaining settings are specific to the indicator. To open the Settings, click on the gear icon in the Chart Tooltip/Legend

Value Area Volume #

Sets the range of price levels in which a specified percentage of all volume was traded during the time period (70% by default).

Width (% of the Box) #

Alters the width of the rows.

Orientation #

Place rows either left or right.

Format #

Determines any of the following formats. Each volume profile type mentioned come with three formats

• Total Volume – Bars on total volume
• Bid X Ask – Stacked bars based on bids and asks
  • Total Volume = Buy Volume + Sell Volume
  • Green = Buy Vol
  • Red = Sell Vol
• Delta – based on Delta (Vol ∆)
  • Green = Positive Delta
  • Red= Negative Delta

Text Color #

Determines the text color.

Up Volume #

Determines the color as well as opacity for the Up Volume (Buys).

Down Volume #

Determines the color as well as opacity for the Down Volume (Sells).

Value Area Up #

Determines the color as well as opacity for the Value Area Up.

Value Area Down #

Determines the color as well as opacity for the Value Area Down.

POC #

Toggles the visibility of the Point of Control.

How to plot Fixed Range or Custom Volume Profile #

Custom Profiles can be created over fixed range using the Volume Profile Drawing tool under Drawing Menu. We repeat Drawing Tool and NOT Indicator