Volume Profile Indicator Strategy

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 have also the time period of plots a histogram on the chart meant to reveal dominant and significant price levels based on volume. Mainly, Volume Profile indicator takes the total volume traded at a specific price level during the specified time period. Also, it divides the total volume into either buy a volume or sell volume and then makes that information easily visible to the trader. Here, we are going to discuss the volume profile indicator broadly along with the examples, taken from a different trading platform.

How To Attach Volume Profile Indicator On The Chart?

Traders can know more about the Volume Profile indicator, then they can find it in the STUDIES section of Zerodha Kite. It 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 HDFC Bank share price chart. The indicator can be used in any time frame charts such as daily, weekly, intraday or monthly.

Volume Profile Indicator

Volume Profile indicator is an extremely valuable technical analysis tool. Traders use the specific indicator to find out the accuracy of the market trend. The key to 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 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.

Volume Profile Indicator Zerodha

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. Volume profile indicator points out the prices that have been favored by the market as well as those that have been ignored. Which can give traders clues about where 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.

Example from UPSTOX

Volume Profile Indicator Strategy

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The specific Upstox chart is based on a short-term 1 week time frame. The GRANULES chart on which volume profile indicator has applied is perfectly reflecting the ups and downs of the volume movement. As I’ve stated above that the term “volume” indicates the total amount of trading activity throughout the trading period. The main feature of the volume profile indicator is it helps to point out the market favored prices along with the ignored once. It basically indicates the upcoming market trend.

Now, let’s have a quick discussion on the process of attaching indicator on Upstox. On the right-up corner of the chart, you will get a script to add option and indicator. So, you can add script through the market watch window or directly in the chart.

Support and Resistance Level

By using the specific volume profile indicator, traders can find out the support and resistance level. You may check our article on the support-resistance level. The support-resistance level is one of the most important parameters in the technical analysis. By applying this, traders can fix the stop-loss, target. Hence, a volume is always a significant tool in analyzing the current as well as upcoming market trend. Support indicates the extreme level below which price won’t go and the opposite happens with the resistance level.

Conclusion :

The main thing that most traders will use volume profile indicator for 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 volume profile indicator. Reactive methods can be useful in applying meaning or significance to price levels where the market has already visited this indicator. Basic technical analysis of volume profile indicator has shown that a support level is a price level, which will support a price on its way down. In the same way, a resistance level is a price level which will resist price on its way up. Therefore, a price level of this near the bottom of the profile which heavily favors the buy side in terms of volume is a good indication of a support level of the volume profile indicator. The opposite way of this is also true. A price level of this indicator near the top of the profile which heavily favors selling side volume is a good indication of a resistance level.

Ankita has done her Diploma Engineering in Computer Science & Technology. She is pursuing her degree in Engineering and also well experienced in the equity market and real estate related content writing. She is the one who has developed the technical indicators section of our site.



Categories: Technical Indicators

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