Volume Profile is an advanced charting tool that displays trading activity over a specific time period and at defined price levels. The Volume Profile indicator plots a histogram on the chart to show significant price levels, based on volume.
The Volume Profile is calculated only for markets that publish their order volume, such as futures or equities. The Time Price Opportunities indicator, also available on NanoTrader, is a similar concept that can be used for instruments whose order volume is not published, such as CFDs or forex.
Volume Profile in detail
Volume Profile shows the market activity at certain price levels. It displays the price distribution over a certain period of time. The Volume Profile can be displayed in the main chart or in a sub-window of the main chart. The data used to calculate the Volume Profile is independent of the main chart. Loading in ticks will provide the best accuracy for the Volume Profile, however, the loading time may be long and the amount of historical data limited. You can choose your favorite server aggregation in the Customize Bar.
The Volume Profile displays important levels such as :
- Point of Control (POC or VPOC): The price level that corresponds to the highest traded volume, over a chosen period.
- Value Area (VA): The range of price levels in which a certain percentage of the overall volume has been traded during a selected period. In general, this percentage is set at 70%. As always this value can be changed in the Custom Bar.
- Value Area High (VAH): The highest price level in the value area.
- Value Area Low (VAL) : The lowest price level in the value area.
Using the Volume Profile
The Volume Profile has many uses. The Volume Profile concepts are not indicators in the true sense of the word, but rather they are tools that are used to make decisions in daily trading. They can therefore really help in analyzing the current market situation in a more global way.
A basic approach is to use the important levels from the previous day’s Volume Profile as support/resistance levels. In this example, the market opened in the previous day’s value area, tested the previous day’s VPOC and began to decline. Also, the retracement of the previous day’s VPOC was a selling opportunity.
Volume peaks and troughs are of great interest to many traders.
A volume spike is an area where a large number of trades have occurred at or around that price level. HVN represents an area of acceptance or consolidation.
Low Volume Nodes (LVN): A volume trough is an area where a small number of trades have occurred at or around this price level. LVN represents an area of rejection.
The Volume Profile can even be used with non-hourly aggregations in the main chart. The following example shows a Renko chart with a Volume Profile based on 120 minutes.