What is Volume Profile? How to use Volume Profile in the crypto market?
As a trader, knowing how to identify support and resistance areas is important. Now, we have many methods to identify them, such as using MA lines, trendlines, or connecting multiple rally areas of top and bottom together, etc. And one of them is the Volume Profile signal. This article will tell you what is Volume Profile and how to use it in the crypto market.
What is the Volume Profile signal?
The Volume Profile indicator is an extremely useful method that traders can practice improving the efficiency of their trading strategies.
It is really flexible and can be applied for a number of purposes, including finding support and resistance areas and identifying areas where we can expect rapid price volatility as well.
This is an indicator that displays trading activity for a specific period of time at certain prices. It shows what was bought and sold at those current levels and presents them in a chart that usually appears to the right of your chart.
The first time you select the VPVR indicator, you will notice three options: Fixed Range, Session Volume, Visible Range.
We advise using the “visible range” because it is the simplest way and does not require setting up any fix points before using. The rest of this article will show you how to use the Volume Profile Visible Range indicator, abbreviated as VPVR.
How to use the Volume Profile Visible Range indicator (VPVR)?
When using the VPVR indicator, you should note the following parameters:
- POC: Point of control – the largest and longest volume button on the volume profile, and the strong and important level as well.
- HVN: High volume node – longer than the average bar on the chart, which is a notably higher price point than the average trading volume rate occurring.
- LVN: Low volume node – shorter than the average bar on the chart, which is remarkably lower than the average trading volume occurring.
- VA: Value area – a part of the highlighted VPVR or other colors that reports this area is where 70% of the trading volume occurs for this part of the chart, represented by the red and green bars in the chart below.
Let’s analyze closer the TRX / BTC chart about some symbols in the chart above, and some highlighted definitions and keywords. First, we will look at the symbol POC on the volume button which is one of the notable levels, because it plays important support for TRX on this chart. The price trading has largely occurred around this POC bar, and then a strong rebound will surpass itself. However, the price is blocked in the HVN area, which is a high trading volume zone, and it also plays as the resistance level of TRX price. You can see that the TRX price is likely to trade in the range from the POC volume button to the HVN volume button in the chart.
Moving to the higher place of the chart, we have a number of LVN bars showing where the volume is very low. And prices usually move faster in the LVN price area and slower in the POC and HVN areas.
Looking at the chart, it is clear that the TRX price is very active at the LVN volume buttons, and it mostly operates in the area enclosed by the two blue arrows above. And this area is called the Value area (VA), which represents 70% of the transaction volume happening in this area.
Overall, the VPVR indicator can be very useful for finding significant support and resistance areas, as well as estimating how prices will move through specific areas. And this method is currently trusted by many traders.