Volume Profile

A volume profile is a histogram drawn sideways on the chart that shows how much volume traded at each price level over a chosen period. Standard volume bars show when trading happened; volume profile shows where it happened. Price levels with heavy volume reveal where buyers and sellers agreed most, and levels with little volume reveal prices the market moved through quickly. Both make useful support, resistance and targets.

How to read a volume profile#

Key elements:

• Point of control (POC): the price with the most volume, where the market spent the most effort. See Point of Control and Value Area.
• Value area: the range containing about 70% of the volume, bounded by the value area high (VAH) and value area low (VAL).
• High volume nodes (HVN): clusters of heavy volume, areas of agreement.
• Low volume nodes (LVN): thin areas, prices the market rejected or passed through quickly. See High and Low Volume Nodes.

Types of volume profile#

Why volume at price matters#

Prices where a lot of trading happened are prices both sides considered fair. When price returns there, it often slows down and rotates, because there are many participants with positions at those levels. Prices with little trading were not accepted, so when price returns to them, it often moves through quickly to the next high volume area. This idea comes from auction market theory, which also underlies market profile. See Market Profile.

How traders use volume profile#

1. Support and resistance: the POC, value area edges and high volume nodes act as reaction levels. See Volume-Based Levels.
2. Targets: low volume gaps often lead price quickly to the next high volume node.
3. Value trading: when price opens outside the previous session's value area and moves back in, traders often expect it to travel across the value area to the other side, sometimes called the 80% rule among profile traders.
4. Breakout context: a breakout from a high volume range into a low volume area often moves fast.

Choosing the right profile#

Match the profile to the decision you are making. Day traders usually look at the prior session's profile and the developing profile for today. Swing traders often use a fixed range profile over the most recent consolidation or trend leg, plus a composite of the last few months. Position traders may use composites covering a year or more. Using the same approach every time keeps your levels comparable.

Limitations#

• Volume quality: spot forex profiles use tick volume.
• Choice of range: different ranges produce different profiles; be consistent.
• Context: in strong trends, price can cut through old high volume areas.

Common mistakes#

• Drawing profiles over random ranges without a reason.
• Treating every high volume node as a wall.
• Ignoring the trend when trading value area levels.

Frequently asked questions#

What is volume profile?#

A sideways histogram showing how much volume traded at each price over a chosen period.

What is the point of control?#

The price level with the highest traded volume in the profile.

How is volume profile different from regular volume?#

Regular volume shows activity per time period; volume profile shows activity per price level.

Next, learn how thick and thin volume areas behave in High and Low Volume Nodes.