The volume profile is a highly appreciated indicator by operators due to its relevance. Created in 1985, it has since ceased to be used, both for very short-term speculating on a daily basis, and for fluctuating using it over larger time units. Today in Wall Street’s Cub Scouts, we will find out how to use it appropriately.
This episode of Wall Street Cub Scouts was presented in collaboration with the Coin Trading and its algorithmic trading solution finally accessible to individuals.
What is the volume?
Let’s take the basic volume view first.
Volume is defined as an instrument for measuring quantity. Displayed on the X axis, it is simply the amount of an asset traded in a given period.
When negotiating a contract, there must be a buyer and a seller. A transaction contributes to the volume of transactions.
Viewed in this way, it can be useful in some cases, especially when you have to cross a resistance or a support, it is preferable that they are of significant volume.
What is the volume profile?
So the volume profile shows the volume, but instead of showing it on the X axis, it shows it on the Y axis.
Instead of giving us the volume information a period, 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 will then analyze this indicator to see all the information it can provide us.
Anatomy of the volume profile
I have noted here all the important elements of the volume profile. Let’s go through these different annotations together:
- Value area: the Value area represents the threshold at which 70% of the volume was traded.
- High Area Value: Marks the top of the Value area
- Low Area Value: Marks the bottom of the Value area
- Control point: perhaps the most important, it indicates the threshold at which the largest volume traded during the observed period was recorded.
- High Volume Node: Indicates a high volume node, which is a threshold over which a lot of volume has been traded
- Low volume node: indicates a low volume threshold, often appears at a level beyond which the price has crossed only briefly.
There may seem to be a lot of elements. In fact, mastering the volume profile, while quite intuitive, takes a long time.
Volume profile time report
In fact, contrary to the usual horizontal volume, for the volumetric profileyou need to select the period you want to observe.
Therefore, there are several choices available, depending on the type of trading!
exchange of swings
Many beginners think that the Volumetric profile it is relevant only in everyday life, it is false! It is also of great interest in larger time units, such as here, weekly and monthly:
Here the Volumetric profile shows its relevance. The VAH, VAL, POC we talked about earlier have been used many times:
The same goes for the Volumetric profile weekly.
Setting up the trading view for the swing
For swing trading, you will need the ” Periodic volumetric profile on TradingView. Go to the “Indicators” tab:
Find and select the Periodic volumetric profile. Once activated, you should have this tab at the top left:
Click on the gear highlighted here.
Here you can change the period settings. I personally use the monthly and weekly for the swing.
You can also duplicate the indicator so you don’t have to do the manipulation every time.
An often overlooked use case of the volume profile: the channel.
You can also define the time period you want to observe yourself. Therefore, it might be relevant to use it when we are in a gap period, like here January to May 2022.
We can see very quickly that VAH, PoC and VAL were very relevant levels:
the Volumetric profile is an extremely relevant indicator during the range period: see where players agree 70% on the price (which is ours Value area).
Therefore, intervening in the remaining 30%, or at least observing what happens there, will produce very interesting rumors. If attendees refuse to see the price drop below the Value area, demand then crushes supply and the return could be an excellent opportunity. You can then aim for the control point, which will definitely be a level at which there will be a price reaction, and therefore the High Area Valueor the participants no longer agree on prices, and it is therefore the supply that crushes the demand.
Here are some examples of positions that could have been taken by relying on the various elements mentioned above. These are just examples and of course it is much easier to analyze what happened in retrospect, but these examples provide good insights into how the volume profile can be used in the interval period.
Define the period you wish to observe via the Trading View
The “Fixed Range Volume Profile” tool perfectly responds to the need to observe what is happening inside 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.
Select “Fixed Interval Volume Profile”.
That’s it, your volume profile is taking shape! By double clicking on the latter, you can adjust all the parameters. Don’t hesitate to change the default parameters to have a VP that’s right for you!
Use volume profile for intraday.
As mentioned earlier, the volume profile is relevant across all time periods. So you can use it every day.
Similarly as in weekly or monthly, the reinstatements in the Value area they often offer great opportunities. But there is something even more interesting about the VP daily: nPoC
nPoC (Naked checkpoint) are checkpoints from previous days that have not yet been retested. They are often of tremendous accuracy and observing the price reaction on these thresholds is very relevant.
In this graph I have symbolized the nPoC test with an arrow. We can see in both cases that they were relatively accurate.
Configure the daily volume profile on Trading View
For daily, you can use the ones below:
The choice between the latter two will be made according to your preferences. the HD session volume profile will show more details, while the session volume profile will be less accurate. There is no better choice between the two, it is a matter of preference.
Once you have selected the one you prefer, you can view VAH, VAL, POC by checking these different boxes. Again, play around with these settings until you find the colors that work for you.
To view the nPoCs, you will need to go to the “Parameter input” tab and select “Extend POC to the right”.
Visible range of the volume profile
Some particularly appreciate it, others much less, the Visible range of the volume profile will display the VP of the period selected on the screen.
It may be convenient, but personally I prefer to have a fixed period to use the VP. Trying and judging for yourself is the best solution.
Remove the candles?
Last point: removing candles from the chart can sometimes be very interesting.
Here is the Bitcoin chart with a volumetric profile monthly. We see one thing very clearly here, and that is the juxtaposition of 4 Value area monthly makes it a key area.
Removing the candles removes the noise from the price to focus on the volume and thus remain under a build-up of Value area like this.
the Volumetric profile is by far my favorite indicator. It’s not miraculous, but it can prove to be of rare relevance in a number of situations. While it is simple enough to understand, it is an indicator that really takes time to master. I leave you to practice before the next part of Wall Street Cubs!
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