Volume Profile indicator is an advanced charting study that displays trading activity over a specified time period at specified price levels. The study which is accounting for traders defined parameters such as a number of rows. This indicator has also a histogram on the chart, it reveals dominant and significant price levels based on volume. Basically, the Volume Profile indicator takes the total volume traded at a specific price level during the specified time period. Here, we are going to discuss the volume profile indicator broadly along with the examples, taken from a different trading platform.
What are the Special Features of the Volume Profile Indicator?
- The indicator allows you to build the market concept. It is based on the study of volumes printed on the y-axis on the price chart.
- Volume as an indicator is quite popular. You can use this during the technical analysis of a stock chart. One can also widely use the volume in forex trading as well.
- Therefore volume is confined to the x-axis. The volume indicator generally shows the number of transactions that take place during a session. Based on whether the price was bullish or bearish, there the volume bars are painted accordingly. This refers to a volume profile or market profile.
- With volume profile, traders basically focus on areas where a reversal could happen.
How To Attach Volume Profile Indicator On different Chart?
Traders can know more about the Volume Profile indicator, then they can find it in the STUDIES section of Zerodha Kite. It is also available in Kite mobile App. The Bars Colour is violet if you want to change this color then you can change it. You can also check the image below to understand how to attach the Volume Profile indicator in the HDFC Bank share price chart. Tou can use the indicator in any time frame charts such as daily, weekly, intraday or monthly.
The next charting platform, I am going to explain is Upstox pro. First, login account in the Upstox, similar to Zerodha kite. Then open chart and then indicator option. There put your preferred indicator name and click on apply.
What is the Usage of the Volume Profile Indicator?
Volume Profile indicator is an extremely valuable technical analysis tool. Traders use a specific indicator to find out the accuracy of the market trend. The key to the Volume Profile indicator’s continued relevancy is its versatility. Volume Profile indicator is a charting tool that truly does have a wide array of uses.
The data that is provided by the Volume Profile indicator is indisputable and leaving it to the trader to find new and creative ways to use it. Even though in its simplest form, it is a great reactive method for discovering traditional support and residential areas. The traders are still coming up with ways to chart this Volume Profile indicator in predictive or proactive ways.
More Key Information about the Indicator
- The volume profile indicator is plotted on the vertical axis of the price chart.
- This shows how much trading activity has taken place at each price level touched throughout the trading session.
- The volume profile indicator points out the prices that have been favored by the market as well as those that have been ignored.
- This can give traders clues about where the price is likely to go in the near future of this indicator.
- Volume profile indicator’s updates every time a new trade order in the market is filled, and the point of control, value area, high volume nodes.
- Also, the low volume nodes of this indicator all change numerous times throughout a given trading session especially on actively traded instruments as more volume activity is recorded.
- Therefore, in the volume profile indicator develops throughout the trading session, new patterns and trading opportunities emerge.
How to Use the Volume Profile Indicator for Profitable Trade?
High Volume Nodes or HVN means peaks in volume at or around the price level. We can see HVN as an indicator of a period of consolidation. Generally, there is a great deal of activity on the buy-sell side. And the market stays at that price level can be a great deal of time in comparison to other levels in the profile. This can determine a “fair value area” for the security.
These are just the reverse of the high volume nodes. The low volume nodes denote a drop in the volume around the price level. The low volume nodes are generated as a result of a breakout in price after consolidation.
During a breakout, one can often notice that price breaks with an initial burst of volume and later it drops off. These drop off levels indicates that the price of the asset is at an unfair value.
On the other side, When price approaches a previous low volume node, there is a huge chance that price will break past that level because of the unfair value. The price of the asset will not spend must time at this level in comparison to the high volume nodes.
The point of control is the specific price level at which there is the biggest activity that takes place. Just Note that time is not of the essence here. Hence, the point of control takes into account only the price level that has seen the most consolidation.
The main thing that most traders will use Vpi is identifying basic support and resistance levels. It is important to use this indicator as an identifier for support and resistance levels is a reactive method. That means proactive methods like trend lines and moving averages which are based on current price action and analysis to predict future price movements. Also, the reactive methods rely on past price movements and volume behavior of VPI. Reactive methods can be useful in applying meaning or significance to price levels where the market has already visited this indicator.