The Volume Profile, a versatile indicator!

The volume profile is an indicator highly appreciated by operators for its relevance. Created in 1985, it has since ceased to be used, whether to speculate on the very short term on a daily basis, or for swing by using it on larger time units. Today in Cub Scouts of Wall Street, we’re going to find out how to use it appropriately.

This episode of Wall Street Cubs is brought to you in collaboration with the Coin Trading and its algorithmic trading solution finally accessible to individuals.

What is volume?

Let’s take the basic volume display first.

Volume is defined as an instrument for measuring quantity. Displayed on the X-axis, it is quite simply the amount of an asset traded over a given period.

When a contract is negotiated, there must be a buyer and a seller. A transaction contributes to the volume of transactions.

Displayed like this, it can be useful in some cases, especially when a resistance or a support must be crossed, it is preferable that they are with a significant volume.

What is volume profile?

So the volume profile shows the volume, but instead of showing on the X axis, it shows on the Y axis.

Volume profile, Y axis

Instead of giving us the volume information on a period, he gives it to us a price level.

It may seem insignificant, but this difference gives us much more information than the volume on the X axis.

We are therefore going to dissect this indicator to see all the information it can provide us.

Volume Profile Anatomy

Volume Profile Anatomy

I have annotated here all the important elements of the Volume Profile. Let’s go over these different annotations together:

  • Value Area: The Value Area represents the threshold at which 70% of the volume has been traded.
  • Value Area High: Marks the top of the Value Area
  • Value Area Low: Marks the bottom of the Value Area
  • Point of Control: Perhaps the most important, it indicates the threshold at which there was the most volume traded during the observed period.
  • High Volume Node: indicates a high volume node, in other words a threshold on which a lot of volume has been traded
  • Low Volume Node: indicates a threshold with low volume, often appears at a level over which the price only briefly crossed.

It may seem like there are a lot of elements. Indeed, mastering the volume profile, although quite intuitive, takes a lot of time.

Volume profile time ratio

Indeed, contrary to the usual horizontal volume, for the volume profileyou must select the period you want to observe.

Thus, several choices are available to you, depending on your type of trading!

swing trading

Many beginners think that the Volume Profile is relevant only in daily, it is false! It is also of great interest in larger units of time, as here, in weekly and monthly:

Example of monthly volume profile
Monthly Volume Profile, H12
Example of the weekly Volume Profile
Weekly Volume Profile, H4

Here the Volume Profile shows its relevance. The VAH, VAL, POC we talked about previously have been used many times:

The key points of the monthly volume profile

The same goes for the Volume Profile weekly.

The key points of the weekly volume profile

Trading View Setup for the Swing

For swing trading, you will need the “ Periodic Volume Profile on TradingView. Go to the “Indicators” tab:

PVP Trading View

Find and select the Periodic Volume Profile. Once activated, you should have this tab at the top left:

Locating Parameters

Click on the gear underlined here.

PVP Settings

Here you can change your period settings. Personally, I use the monthly and the weekly for the swing.

Volume Profile parameter result for swing!

You can also duplicate the indicator so you don’t have to do the manipulation each time.

An often overlooked use case of the Volume Profile: the channel.

You can also define yourself the time period you want to observe. Thus, it may be relevant to use it when we are in a range period, like here from January to May 2022.

The Volume Profile within a channel?

We can see very quickly that the VAH, PoC and VAL were very relevant levels:

Our different key points!

the Volume Profile is an extremely relevant indicator during the range period: see where the players are 70% in agreement on the price (which is our Value Area).

Thus, intervening in the remaining 30%, or at least observing what is happening there, will yield very interesting entries. If the participants refuse to see the price fall below the Value Area, demand then crushes supply and re-entry could be a very good opportunity. You can then aim for the control point, which will surely be a level at which there will be a reaction of the price, and then the Value Area Highor the participants no longer agree on prices, and it is then supply that crushes demand.

Example position taking using the Volume Profile

Here are some examples of positions that could have been taken by relying on the various elements mentioned above. They are only examples, and obviously, it is much easier to analyze after the fact what happened, but these examples give good elements of understanding on how it is possible to use the Volume Profile in range period.

Define either the period you want to observe via Trading View

The “Fixed Range Volume Profile” tool perfectly meets the need to observe what is happening within a channel. To do this, go to the left of your Trading View, then click on the small arrow next to the “long position” tool.

FRVP

Select “Fixed Range Volume Profile”.

Define the range to observe
One click to define the beginning, the other to define the end of the desired period

There you go, your volume profile is taking shape! By double clicking on the latter, you will be able to adjust all the parameters. Do not hesitate to modify the default parameters in order to have a VP that suits you!

Use volume profile for intraday.

As said before, the volume profile is relevant over all time periods. So you can use it daily.

The volume profile daily

In the same way as in weekly or monthly, the reintegrations in the Value Area often offer great opportunities. But there is something even more interesting for the VP daily: nPoCs

nPoCs (Naked point of control) are checkpoints from previous days that have not yet been retested. They are often of formidable precision, and observing the reaction of the price on these thresholds is very relevant.

The relevance of nPoCs
The relevance of nPoCs

On this graph, I have symbolized the nPoC test with an arrow. We can see in both cases that they were relatively accurate.

Configure daily Volume Profile on Trading View

For the daily, you can use those below:

Please Setup
Both available please
Session Volume Profile vs. Session Volume Profile HD

The choice between the latter two will be made according to your preferences. the Session Volume Profile HD will show more detail, while the Session Volume Profile will be less accurate. There is no better choice between the two, it’s a matter of preference.

SVP Parameter

Once the one you prefer is selected, you can display the VAH, VAL, POC by checking these different boxes. Again, play around with these settings until you find the colors that work for you.

Enable nPoCs

To display the nPoCs, you will have to go to the “Input parameters” tab and check “Extend POC to the right”.

Volume Profile Visible Range

Some particularly appreciate it, others much less, the Volume Profile Visible Range will display the VP of the period selected on your screen.

VRVP
Example VRVP M15
Visible Range Volume Profile in 15 minutes
Daily VRVP example
Visible Range Volume Profile daily

It can be convenient, but I personally prefer having a fixed period to use the VP. Try and judge for yourself is the best solution.

Remove spark plugs?

Last point: removing candles from your chart can sometimes be very interesting.

Remove candles to increase visibility
Monthly Volume Profile

Here is the Bitcoin chart with a volume profile monthly. We see one thing very clearly here, and that is that the juxtaposition of 4 Value Area monthly makes it a key area.

The value areas
Several monthly Value Area shows us a very important area

Removing the candles removes the noise from the price to focus on volume, and therefore stay back under an accumulation of Value Area like this one.

Conclusion

the Volume Profile is by far my favorite indicator. It is not miraculous, but can prove to be of rare relevance in a good number of situations. Although it is quite simple to understand, it is an indicator that really takes time to master. I’ll leave you to practice before the next part of Wall Street Cubs!

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