In my previous story, I touched on how crucial it is to identify resistance and support levels in trading. One of the tools that has significantly improved my ability to do this is the Horizontal Volume Indicator (VPVR). You can check out that story here.
When I started using the VPVR, it became an essential part of my trading toolkit, providing me with a clear view of where the market is likely to encounter significant buying or selling pressure. This indicator, which displays the traded volume at different price levels, reveals areas of high and low trading activity, helping me make informed decisions.
Breaking Down the Volume Profile Indicator
Every Volume Profile chart is composed of several critical elements that help traders like me assess market volume more effectively. Here’s how I use them:
1) Value Area
The Value Area represents the price range where 70% of the trading volume occurred (based on the Gauss Distribution Model, this should ideally be around 68.2%). Identifying this area has helped me focus on the most significant price levels.
2) Point of Control (PoC)
The PoC is a game-changer for me. It’s the price point where the most trading activity happens during a session. I often refer to it as the “fair price” since it’s where the market sees the most agreement between buyers and sellers. Recognizing the PoC has given me crucial insights into potential market trends and reversals.
3) Value Area High (VAH)
The VAH is the upper boundary of the Value Area. I frequently watch this level as it can act as a strong support or resistance line, helping me anticipate market moves.
4) Value Area Low (VAL)
On the flip side, the VAL marks the lowest price level within the Value Area. I use this level similarly to the VAH, looking for potential support or resistance zones.
5) High Volume Node (HVN)
The HVN is where a large amount of trading activity occurs within a particular price range. Spotting these nodes allows me to identify zones of strong market interest.
6) Low Volume Node (LVN)
Conversely, the LVN represents a price range with less trading activity. These areas are often where the market moves quickly through, providing opportunities for breakout trades.
7) Liquidity Gaps
Liquidity gaps, where no trades are made, are essential to understand. I’ve noticed that prices tend to move swiftly through these zones, making them critical areas for setting up trades.
Three Variations of the Volume Profile Indicator
When it comes to analyzing volume in trading, there are three key variations of the Volume Profile indicator. While I primarily use the VPVR, here’s a brief overview of each:
VPVR Indicator
The VPVR is a histogram that shows the volume traded at various price levels over a specific period. It’s my go-to for understanding how volume is distributed across price points (in the picture above)
Fixed Range Volume Profile
With the Fixed Range Volume Profile (VPFR), I can visualize the trading activity within a specific time frame, defined by me. This feature is particularly useful when I want to focus on a particular market period.
VPSV Indicator
The Volume Profile Session Volume (VPSV) indicator is similar to the Fixed Range Volume Profile but with a key difference: instead of focusing on a specific, user-defined time frame, the VPSV provides volume statistics for each price point within a trading session.
Setting Up the VPVR
VPVR “Number of Rows”: This setting allows me to adjust the number of rows displayed on the histogram, giving me more precise information on each price level.Value Area Volume: Here, I can tweak the Value Area percentage, which is set to 70% by default, reflecting the normal distribution model.
Tools I Use to Set Up These Indicators
I typically set up these indicators on platforms like TradingView and GoodCrypto. Both tools have been instrumental in fine-tuning my trading strategy.
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Using Horizontal Volume Profile to Spot Key Support and Resistance Levels in Trading was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.