Volume Profile Indicator: A Trader’s Guide

How does the Volume Profile indicator work?

How many shares of the XYZ company were traded today at $100?

This is a simple question, and Volume Profile is used to answer such and similar questions.

The Volume Profile indicator works in the following way. It:

• filters all trades that were made over a certain period at a certain price

• sums up the volumes of these trades

• displays the results on the price chart

Hourly Volume Profile in the gold futures market

This chart shows the Volume Profile indicator as a blue histogram. The screenshot is from ATAS, a professional trading platform that was specially developed for volume analysis.

In the example above, the indicator shows that after 10:00, the biggest number of contracts, namely 247, were traded at $2396.3 per contract (the price of 1 ounce).

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How do you use the Volume Profile indicator?

Volume Profile can be used in various ways. Below, I will explain just a few of them:

• Market trend assessment

• Finding support and resistance levels

• Value Area identification

• Single Prints analysis

Market trend assessment

As you know, the market can be either flat or trending.

The profile helps determine the market’s current state.

Here is an example:

Volume profile analysis in the gold futures market

The 5-minute timeframe chart shows that:

1. After a growth period, buyers and sellers reached a consensus. This is displayed by the convex shape of the volume profile distribution (А). The highest volume was traded at $2424.0 per contract

2. Due to new factors, the balance between buyers and sellers was tipped. Demand decreased and the price went down. This was a trending stage with a typical narrow profile

3. Then, a new balance formed. Another convex (В) started growing, and the highest trading volume was at $2401.0 per contract

Traders pay attention not only to the alternation of convex profiles (typical of flat markets) and narrow profiles (typical of trending markets), but also to profile shapes. For example, there are b-shaped and p-shaped profiles that reflect the details of changes in supply and demand balances.

Finding support and resistance levels

The highest volume level on a profile indicator is called the Point of Control (POC). It is considered to serve as a support or resistance level.

Point of Control in the Bitcoin market

This chart shows how the POC level, at which the highest volume was traded in the analyzed period, became a support level after the price started moving up. Thus, using the Volume Profile data, traders could join the uptrend with low risk.

Value Area identification

In the Volume Profile context, a Value Area is a price range that contains a considerable part of the trading activity – usually 70-80% of the whole trading volume in the analyzed period. This metric is used to find levels where the market was steady and most of the trading was concentrated.

A volume profile on a S&P-500 futures chart

The volume profile above shows a bulge that formed after a price drop period. This bulge means that trading volume increased when more traders found a consensus regarding the price. An agreement on the fair value identified by the Volume Profile indicator often points to the highest or the lowest price in the Value Area. In the example above, it was the highest price, or the Value Area High (VAH), which acted as resistance the next day.

Single Prints

In terms of volume profiles, Single Prints are the levels where trading was minimal during a given period. These may be sections where the price moved quickly, leaving gaps in the volume profile. Single Prints can indicate strong levels of support or resistance because one of the sides had an unconditional advantage at these levels.

Single Prints on a EUR futures chart

The chart above shows single prints (А) that formed on the profile as the price rose from 1.08415 to 1.08465, suggesting that demand prevailed. Expectedly, when the price got back to that area the same day, it found support (supply was still limited).

How to start using the Volume Profile indicator?

To start using Volume Profile, follow this process:

1. Study: Read articles and books on volume profile analysis, including the books by James Dalton, Peter Steidlmayer, and other reputable authors

2. Choose a platform: Make sure your trading platform supports Volume Profile indicators. Some of the popular platforms are ATAS, TradingView, NinjaTrader, and ThinkorSwim

3. Practice: Look at the market’s recent history. Note the way volume was distributed across different price levels and the shapes the profile took during reversals, tests, and breakouts

4. Trade: Use the knowledge you gained to develop your volume profile trading strategy

To avoid negative experience using the Volume Profile indicator in trading, start with a demo account. Do not risk large amounts of money.

Does MT4 have Volume Profile?

No, the popular MetaTrader 4 platform does not have a built-in Volume Profile indicator, but users can download it from the library at a small cost.

The Volume Profile indicator for МТ4

It’s worth noting that Volume Profile requires quality input data, especially for lower timeframe analysis. Therefore, if you want to use volume profiles in Forex, it may be best to analyze currency futures trading volumes on the Chicago Mercantile Exchange (CME).

Does TradingView have a Volume Profile?

Yes, the TradingView platform allows using several variations of Volume Profile – both built-in indicators and those added by traders.

Volume Profile indicators available on TradingView

Is it worth using Volume Profile indicators on TradingView?

What is the best Volume Profile indicator?

Remember the question at the beginning of the article: “How many shares of the XYZ company were traded today at $100?” There can be only one correct answer, so the use of different versions of indicators should always give the same correct answer.

Among the criteria that may be applied to choose “the best” tool for volume profile analysis, I will point out:

Timeframe settings

Trading platforms offer Volume Profile Visible Range (VPVR), Volume Profile Fixed Range (VPFR), and Volume Profile Session (VPSV). They seem to be different indicators, but in fact, this is the same profile, only with different ways of selecting timeframes. The best tool may be one that provides maximum flexibility – up to building volume profiles for any section of a chart.

Visualization

The best Volume Profile indicator must meet your aesthetic preferences and have numerous settings for colors, fonts, transparency, etc.

Features

The most progressive versions of Volume Profile indicators enable users to:

• analyze bid and ask volumes separately

• set proportions for thin and convex profiles

• set alerts for specified levels

Traders often use Volume Profile indicators on such platforms as TradingView, ATAS, NinjaTrader, or ThinkorSwim that provide advanced features for charting and technical analysis. Each platform can have its own unique versions of these indicators. Traders should experiment with these tools to see which ones best suit their trading strategies and provide the clearest data for market activity.

Is volume a good indicator?

Trading volume is one of the key indicators in financial markets, as it shows traders’ activity and interest in specified assets during specified time periods. Volumes help traders understand how strong or weak a current trend is, find support and resistance levels, reduce risks, and achieve other goals in trading.