Volume Profile
Lets discover the most important tool in market i.e. Volume Profile.
Table of Contents
Volume Profile
Volume at Time (Volume)
Unlike standard volume indicators that only show volumes at time, the Volume Profile can provide much more important information, which is volume at a specific price.
Volume Profile
- Volume at price is so valuable because it tells us which price levels were most important for the big guys who dominate the markets.
- The more volumes accumulate at a specific price level, the more significant the price level is.
- You can tell the amount of volumes by the thickness of the Volume Profile.
- In a place where the profile is wide, heavy volumes got accumulated. Where the Volume Profile is thin, only low volumes were traded.
What Does Volume Profile Tell Us?
Volume Profile to be applied from 07 Dec 22 10:55 am to 08 Dec 22 02:10 pm
Volume Profile tells us how the volume was distributed over a given price range. This is very useful information.
Volume Profile Applied
Volume Profile with Heavy and Low Volume Zone
In the picture above, you can see two heavy volume zones and One low volume zone where the Volume Profile is thin.
- What does the above particular picture tell us?
- It tells us that big financial institutions were interested in trading in those two heavy-volume zones. On the other hand, they did not care for trading too much in the middle zone where the volumes were weak.
Volume Profile Read
- As above chart shows that this scenario could be a sign that big institutions were:
- Building up their huge Long positions in the heavy volume zone (43000–43160).
- Manipulating the price to go into a buy-off (that’s the thin profile).
- And, finally, quitting their positions (or adding to them) in the heavy volume zone around (43320–43480).
Volume Profile: Point of control
Volume Profile: Point of Control aka POC (42228.40~42161.90)
- The most significant place in every Volume Profile histogram is the Point of control (POC).
- POC is a place where the institutions traded most of their volumes, possibly a place where they were accumulating their big trading positions.
- They accumulated their positions in a wider range, but POC is a place where they accumulated the most of their volumes.
- It serves as a very strong reference point for all market participants because it shows where the interest of the institutions lies.
Volume Profile: Strong Reaction to POC
- Price usually makes quite strong reactions to POC levels.
- However, in our trading, We don’t trade POCs blindly. We combine the information from Price Action with information that Volume Profile provides.
- This combination gives us the perfect market overview that is needed for our analysis.
- Apart from POC’s, we also look for other heavy volume areas. They work more or less the same way as POC‘s do.
- The logic is the same: big volumes = big players.
That’s it for this article in the next article we are going to explore various different shapes of volume profile.