As mentioned in previous post, I believe that volume is a very important ingredient in reading trading charts, understanding history and identifying what is probably happening now. Ingredient that can be easily ignored or underestimated. Volume is showing the history of money transfers, where traders are buying and where they are selling. The relation between demand and supply.
What Volume Profile is?
It’s a different view on the volume data. Standard volume chart is showing volume distributed in time. Volume Profile is showing volume distributed in price space. Simply showing volume on price levels where that volume was traded.
At the time of writing this text “Volume Profile” on Traiding View is available starting from PRO plan. But don't be discouraged because I have prepared a set of free scripts called “Volume Profile For All Accounts”, that are not as accurate as the built-in ones, but give a pretty good approximation.
All of the scripts are showing Volume Profile, however, they are picking data set in a different way:
Volume Profile For All Accounts - Is showing Volume Profile from last N bars.
Volume Profile From Date For All Accounts - Is showing Volume Profile starting from a Date (number of bars is increasing with each new bar).
Volume Profile Range For All Accounts - Is showing Volume Profile between 2 dates. It's greate for analyzing trends.
Volume Profile Visible Range For All Accounts - Is showing Volume Profile for data visible on the screen.
How we can use Volume Profile ?
We can find areas / prices where big volume was traded. Typically those areas/prices will be our natural support and resistance. From some reason they were important for traders.
In we try to check who is trading on the market we will see a lot of small fishes like me or you that are making transactions for no more that several thousand dollars. Such transaction can barely influence the market. We will also see smaller group of bigger fishes or huge whales that are investing hundreds of thousands or millions of dollars. Such transactions are changing prices and are influencing the market.
As a small fish I would like to see where the whales are swimming and join their momentum, to make my trading live easier. Volume allow us to see that. Bigger capital cannot buy or sell without leaving trail in the volume, just we need to learn how to read that trails.
You can ask, and what if this volume is not a big wale, just a shoal of fishes. Well it’s possible that some group of people has confidential information before the market and it’s spreading out to bigger group of investors. Still we at least now that something is going and it may be worth to check it out. In some cases it would be a trade made by big institution, that has some plan for the market and capital to move the market in planned direction. Guessing such intentions may create a nice trading occasion.
Where to learn more?
Both Volume Profile and VWAP are used in volume trading trend, an approach that is gaining popularity. I’m still learning it, so let me mention 2 traders that are highly advertising with the volume trading topic. I’ve not analyzed achieving results nor efficiency of their strategies. I only see that they have been using this tools for several years and are also publishing free materials, that may be useful with understanding practice use of this toolkit:
- Trader Dale – An author of “Volume Profile: The insider’s guide to trading” book. Trader Dale is using volume heavily in different forms. In the materials I have seen, he explains his ideas in a simple manner. The strategies proposed by him can be planned and do not require many hours of analyzing the chart. Trader Dale video about Volume Profile and VWAP strategies - Watch to end to find access to free PDF book, and check book to get access to some extra content.
- Neerav Vadera - You will probably come across his ads when you search for information on volume-based trading strategies. Neerav is using more advanced tool called Order Flow (or Footprint on other platforms) chart. I'm preparing Order Flow implementation on TradingView and will describe it soon.
Before I finish I want to focus your attention on the stop loss settings in the Volume trading. The simplest assumption is to place them behind large volume areas that are working as support and resistance zones. It sounds great, just I saw a number of situations where the loss on the stop-loss was equal or even bigger than potential profit on the take-profit. For me it’s a big red light, because this require a very high efficiency of the method in all market conditions to bring profit in long terms.
If you like my work, please “Boost” all the scripts.
Have a nice day, and good luck in trading !