PowerZone Trading Blog

How to Trade with Volume Profile

Jean Folger - Wednesday, February 25, 2015

This article appears in the January 2015 issue of Futures magazine.

In a previous article, we introduced key concepts in volume profile and the various trends that emerge throughout a trading session. With today’s advanced charting platforms, virtually any trader can access this type of market analysis to identify where (price) trading activity took place and how much (volume) trading took place at each price level. Here, we take a closer look at the volume profile and explain how it can be used to identify trade entries and exits.

Volume profile review
Many traders are used to viewing volume as a histogram beneath a price chart. This approach shows the amount of volume traded during each price bar, whether it’s a time-based bar (such as one-minute) or an activity-based bar (such as 144-tick or 2000-tick volume). While this is a popular way to analyze volume, knowing where the volume occurs—in terms of price, rather than time—can be more meaningful.

Volume profile, plotted on the vertical axis of the price chart, does just that: It shows how much trading activity has taken place at each price level touched throughout the trading session. Why is this helpful to traders? Volume profile points out the prices that have been favored by the market as well as those that have been ignored, which can give traders clues about where price is likely to go in the near future. Read more