How to Use Volume Profile

By Fizz on my Jayce | Fizz on my Jayce | 20 Dec 2021


Hello everybody, Volume Profile is something that I believe every trader should have within their toolset to be able to really understand where the value within the market is and to be able to understand those key support and resistance levels. It is massively important because if you can understand where the volume is on the charts then you can understand where the money is positioned and if you can understand where the money is positioned, where the people are trading the assets, then you can take trades with or against them depending on what is your strategy in order to enter trades and find good take profit levels. Today I'm going to explain what is Volume Profile and how can you use it.


What is Volume Profile?


Volume is a very important part of trading. It can help you to identify major support and resistance levels and to understand what fair price of an asset is.
It can also help you to identify where imbalances are within the market. Volume profile displays trading activity over a specified time period at specified price levels. The standard volume indicator shows the volume for each time period or candle on your x-axis. Every bit of volume here is priced per candle basically, so every single candle that you are looking at every period of time totals up the amount of volume within that candle and it gives you an idea of the volume that has traded throughout history. Volume profile goes here on your y-axis and this shows the volume for each price or pip level. This volume is basically saying throughout this entire period of time that we have on this chart, this is how much volume has traded at this certain price. That is just a basic overview of what the volume profile is. Let's have a look at the main terminology.


Terminology

 

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The most significant level is your Point of Control (POC). Basically, this is where the most volume has been traded at that price for the time period that
you have chosen. Naturally, it is going to be very important support and resistance level. There are going to be traders that have positions at that price and there are a lot of transactions taking place at that price of the chart. The second most important areas are these Value Area High (VAH) and Value Area Low (VAL). These two are based on the concept that the market is always trying to find balance and if it is trying to find balance then it wants to be within a fair price. This value area between VAH and VAL aims to give you an idea of where that fair price is whether if you are going to see moves outside of fair price then you can expect an attempt to move back in into it to get that fair price and for the balance to be restored within the market. On default, this is showing you simply 70% of all total volume therefore this is the price area in which 70% of all volume has taken place. Anything outside of this is the remaining 30% that is outside of value area. The other important factors on this are your High Volume Nodes (HVN). You can see with this profile on the right-hand side how you have these spikes. HVN shows that although it is not a point of control there is significant interest in this area. Low Volume Node (LVN) is showing you possible imbalances within the chart. This is an area where price has moved through very quickly without much interest. We can expect if price comes up into one of these low volume nodes you could quite easily expect price to move all the way through it because there is very little resistance/support. Finally, you have got your profile high and your profile low That is just very simply the high and the low of the profile.


Trading strategies

 

There are very many strategies with Volume Profile that are profitable. I will try to present you two well-known strategies with this indicator.

  •  POC as a strong support/resistance

 

As you know on POC we can find large amount of volume. Most of the time the market wants to come back to the POC. In this strategy we are looking for a response at previous day POC. POC should be untested, simply because it increases the chances of getting a bigger rebound.


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  •  Trade on the Volume Area High/Low

In the value area, there is 70 percent of the traded volume. These areas can be used as resistance and support levels. You can search for reversals and
for entries outside the value area. Wait for low volume. If the market does not want to trade the market will search for new prices. This can be a reversal.


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Hope you found today’s article helpful. If you want to learn more about trading follow me at @Fizz-on-my-Jayce. Have a nice day :)

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Fizz on my Jayce
Fizz on my Jayce

Crypto trader & Investor. I show my opinions, trading tips, and nothing is financial advice.


Fizz on my Jayce
Fizz on my Jayce

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