Understanding the volume profile

 In ATAS the trading platform, Order Flow Trading, Uncategorized, Volume Trading

The volume:

What is the volume anyway? Without volume, the price would not move, because there would be no trading.
The volume is the number of contracts traded in a given period, or at a certain price.

The plant fee is usually divided into 3 different application areas: the volume on the timeline (volume bars), the volume on the price axis (volume profile) and the tick volume (footprint chart).

First of all, a general misinterpretation must be pointed out here: the volume is NOT an indicator, it is like the price an integral part of trade and, unlike indicators, does not have to be calculated. This is where the current real-time data of the exchange or the data feed is processed. However, the volume is usually found as an indicator in various trading platforms. It is not an abstract or technical indicator, but a quantifiable, real, reliable and interpretable measure of the real-time situation of the market or instrument. The volume does not depend on external factors or additional information to give us information about what happens to the price, but rather the price depends on the volume and its variations and largely moves between price levels according to the Principles of Aucion Theory. The volume precedes the price.

to know:

Often traders with little experience, or with very little information, compare the graphical representations of volume with technical indicators. However, this is a major mistake, since the technical indicators are by their very nature only mathematical equations that depend on past price information to display data. In the chain of events, this is the right order: buyers and sellers participate in the market, the volume reacts (can be measured and interpreted), then the price reacts and finally the standard indicators react.

Volume is one of the most important tools for professional traders as volume is the cause of price movements.

An in-depth knowledge of the transaction volume can open the door to success as a trader. For a lot of professional traders, trading through volume interpretation is the only way to have an effective perspective on price movements. Reading the volume is only possible in markets that allow access to depth of the market (futures, equities, but also cryptocurrencies). Volume trading is neither the Holy Grail”, nor a strategy – coupled with other approaches such as charting, elliot waves, order flow strategies, or others, however, the volume helps you confirm the setup. There are strategies based purely on volume, but it is recommended to look beyond the plate and, above all, to observe what the mass does.

Graphical possibilities for interpreting the volume:

The volume data is important for the interpretation of the price action. For the volume, a graphical representation is required, which displays information and thus makes it interpretable.

The most common methods are:

Histogram Volume (Vertical): A histogram is a bar chart that contains the size of the volume in all price levels that make up a candlestick. Graphically, it is possible in two ways – with spot colours, without distinguishing sellers or buyers (in my opinion the most objective way to see it to avoid a market noise), or with adjustable colours to distinguish the volume of sales. Purchase volume green, sales volume red).

The color of each bar is assigned by the closing price of the corresponding candlestick. If the closing price is lower than the opening price (bearish candlestick), the candlestick of the histogram turns red and if the closing price is higher than the open of the candlestick, the histogram bar is green (bullish candlestick).


The volume profile:

Modern chart programs offer a horizontal representation of the price with the spent Volume The names may vary here. The volume profile, value-at-price or market profiles are worth mentioning. The idea behind it is not new, pioneered here was Peter Steidlemayer, who worked out an analysis in this way professionally in the 80s. Its market profile refers to intraday charts and has become a fixed trademark. Steidlemayer’s market profile focuses on 30-minute segments within the trading day, while the term volume profile allows for a freely definable viewing period of the chart. The analysis period can therefore also be days or months. The market profile is mainly interesting for intradaytraders, followed by a standalone blog entry.

The volume profile (horizontal): The volume profile contains the volume zones at different price levels during one or more candlesticks or bars, with the areas with the highest volume concentration (POC) grouped into upper and lower value areas. The visual representation is simply a horizontal axis between price and volume. The POC is simply the point of the largest volume, the price that was traded the most on the day, or the unit of time that is set. The value area is defined as the area where 70 of the total trade took place. VAH (Value-Area-High) and VAL (Value-Area-Low) are the upper and lower burrs of this 70-zone.

value area volume

What is acceptance and how is it perceived?

Acceptance occurs at the points of the volume profile where MORE trading by market participants took place. Visually, it is the bumps/peaks in the profile (see below).

What is rejection and how is it perceived?

Rejection is defined by the areas of a volume profile where WENIGER trading was carried out by market participants. Visually, it is the valleys/troughs in the profile (see below). The fact that less volume was traded proves that there has been a rejection of these prices.

volume nodes

There are three types of volume profiles (VP) that have the same name as an indicator, but are nevertheless divided into:

  • Micro : Volume profile on footprint charts, tick charts, or very small time units
  • Intraday : volume profile of the day; serves to find the most important areas of the current day
  • Composite : Volume profile on the whole contract or longer period; serves to identify resistances and supports


Volume/Contracts at Footprint Chart

volume profile

Monthly volume

volume profile

In ATAS you can put the Volume to any chart form

Horizontal Volume

In this example, the volume profile is shown at the left margin. The sharper the shape of the profile, the stronger its effect on the courses. The strength as a resistance and support area increases with the top. The Volume is also the key to understanding the volume profile. If the price is removed from the profile peak and the volume dries up, then it is likely that the price will bounce back.

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