Volume Profile | Indicator Series

Volume Profile is a technical indicator that is used to determine significant price levels based on trading volume that may act as support or resistance. Volume Profile takes into account both buying and selling volume and directly displays that information on the chart to make it easier for traders to spot the underlying buying or selling pressure.

How to Interpret Volume Profile

There are several significant levels to pay attention to while looking at a Volume Profile chart: ( Click this link to access an economic calendar for your trading strategies )

Point of Control: This is the price level with the highest volume in a chosen period

Profile High/Profile Low: The highest/lowest reached price level in a chosen period

Value Area: A range of price values in which a major percentage of all volume occurs. The default value is 70%.

High Volume Node: This is the price level where the highest trading volume occurs. The market tends to spend a great deal of time at this price level because it’s considered to be a fair value area where the asset price reflects its true value. When approaching previous High Volume Nodes, the market may enter a trading range for an extended period of time.

Low Volume Node: Contrary to a High Volume Node, a Low Volume Node is where thin trading volume occurs. Typically this happens as a result of a breakout or breakdown. After an initial burst of volume, trading activities diminish because market participants consider the price level as not reflecting the true asset value. When approaching previous Low Volume Nodes, the market tends to rally through that level.

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Support and Resistance Levels

Volume Profile is an excellent tool for finding support and resistance levels. Traders look for heavily traded price levels that have substantial volume as an indicator of future support (in case of a downtrend) or resistance (in case of an uptrend) levels. Keep in mind that once the price reverts course, support may become resistance and vice versa.

Different from other proactive technical indicators like the trend lines, Relative Strength Index, or Parabolic SAR, Volume Profile is a reactive indicator. It can tell traders what happened in the past but can’t predict the future. 

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