Indicators
Price & Volume Profile

Price & Volume Profile Trading Indicator

By
Zeiierman
on
June 11, 2024

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The Price & Volume Profile provides a holistic perspective on market dynamics by simultaneously tracking price action and trading volume across a range of price levels. So it is not only a volume-based indicator but also a price-based one. In addition to illustrating volume distribution, it quantifies how frequently the price has fallen within a particular range, thus offering a holistic perspective on market dynamics.

This unique and comprehensive approach to market analysis by considering both price action and trading volume, two crucial dimensions of market activity. Its distinctive methodology offers several advantages:

  • Holistic Market View: By simultaneously tracking the frequency of specific price ranges (Price Profile) and the volume traded at those ranges (Volume Profile), this indicator provides a more complete picture of market behavior. It shows not only where the market is trading but also how much it’s trading, reflecting both price acceptance levels and market participation intensity.
  • Point of Control (POC): The POC, as highlighted by this indicator, serves as a significant reference point for traders. It identifies the price level with the highest trading activity, thus indicating a strong consensus among market participants about the asset’s fair value. Observing how price interacts with the POC can offer valuable insights into market sentiment and potential trend reversals.
  • Support and Resistance Levels: Price levels with high trading activity often act as support or resistance in future price movements. The indicator visually represents these levels, enabling traders to anticipate potential price reactions.

Price Profile

Price and Volume Profile

Calculations


The algorithm analyzes both trade frequency and volume across different price levels. It identifies these levels within the visible chart range, then examines each bar to determine if the selected price falls within these levels. If so, it increases a counter and adds the trading volume. This process repeats across the visible range and is visualized as a horizontal histogram, each bar representing a price level and the bar length reflecting trade frequency and volume. Additionally, it calculates the Point of Control (POC), signifying the price level with the highest activity.

In summary: The histogram presents a dual perspective – not only the traded volume at each price level but also the frequency of the price hitting each range. The longer the bar, the more times the price has frequented that specific range, revealing key insights into price behavior and acceptance levels. These frequently visited areas often emerge as strong support or resistance zones, helping traders navigate market movements.

    Please note that the indicator adjusts to the visible price range, making it adaptable to changing market conditions. This dynamic analysis can provide more relevant and timely information than static indicators.

How to use


This indicator is beneficial for traders as it offers insights into the distribution of trading activity across different price levels. It helps identify key areas of support and resistance and gives a visual representation of market sentiment and liquidity.

The point of control (POC), which is the price level with the highest traded volume or frequency count, becomes even more crucial in this context. It marks the price at which the most trading activity occurred, signaling a strong consensus among market participants about the asset’s fair value. If the market price deviates significantly from the POC, it could suggest an overbought or oversold condition, potentially leading to a price reversion.

Fair Price Areas/gaps are specific price levels or zones where an asset has spent limited time in the past. These areas are considered interesting or significant because they may have an impact on future price action.

Similar to the concept of fair value gaps, which refers to discrepancies between an asset’s market price and its estimated intrinsic value, Fair Price Areas/gaps focus on price levels that have been relatively underutilized in terms of trading activity. When an asset’s price reaches a Fair Price Area/gap, traders and investors pay attention because they expect the price to react in some way. The rationale behind this concept is that price tends to gravitate towards areas where it has spent less time in the past, as the market perceives them as significant levels.

Settings

The indicator is customizable, allowing users to define the number of price levels (rows), the offset, the data source, and whether to display volume or frequency count. It also adjusts dynamically to the visible price range on the chart, ensuring that the analysis remains relevant and timely with changing market conditions.

  • Source: The price to use for the calculation. Typically, this is the closing price. By considering the user-selected Source (typically the closing price), the indicator determines the frequency with which the price lands within each designated price level (row) over the selected period. In essence, the indicator provides a count of bars where the Source price falls within each range, essentially creating a “Price Profile.”
  • Row Size: The number of price levels (rows) to divide the visible price range into.
  • Display: Choose whether to display the number of bars (“Counter”) or the total volume (“Volume”) for each price level.
  • Offset: The distance of the histogram from the price chart.
  • Point of Control (POC): If enabled, the indicator will highlight the price level with the most activity.

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