Analisis de Volume Profile in Preguntas sobre Trading de Forex en IQ Option

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Volume Profile

Contents

DEFINITION

Volume Profile is an advanced charting study that displays trading activity over a specified time period at specified price levels. The study (accounting for user defined parameters such as number of rows and time period) plots a histogram on the chart meant to reveal dominant and/or significant price levels based on volume. Essentially, Volume Profile takes the total volume traded at a specific price level during the specified time period and divides the total volume into either buy volume or sell volume and then makes that information easily visible to the trader.

TYPICAL LEVELS OF SIGNIFICANCE

CALCULATION

Depending on a time resolution of a chart, data from various resolutions can be used in calculations of Volume Profile. When calculating Fixed Range and Visible Range, we alternately try resolutions from 1, 3, 5, 15, 30, 60, 240, 1D, until the number of bars in the time interval, for which VP is calculated, will be less than 5000. For Session Volume the following dependency on a chart resolution is adopted:

Chart resolution Resolution of bars used for VP calculation
1 – 5 1
6 – 15 5
16 – 30 10
31 – 60 15
61 – 120 30
121 – 1D 60

WHAT TO LOOK FOR

Support and Resistance Levels

The first thing that most traders will use volume profile for is identifying basic support and resistance levels. It is important to note that using Volume Profile as an identifier for support and resistance levels is a reactive method. This means that unlike proactive methods (such as trend lines and moving averages) which are based on current price action and analysis to predict future price movements, reactive methods rely on past price movements and volume behavior. Reactive methods can be useful in applying meaning or significance to price levels where the market has already visited. Basic technical analysis has shown that a support level is a price level which will support a price on its way down and a resistance level is a price level which will resist price on its way up. Therefore, one can conclude that a price level near the bottom of the profile which heavily favors the buy side in terms of volume is a good indication of a support level. The opposite is also true. A price level near the top of the profile which heavily favors sell side volume is a good indication of a resistance level.

Volume Nodes

High Volume Nodes (HVN) are peaks in volume at or around a price level. HVN can be seen as an indicator of a period of consolidation. Usually there is a great deal of activity on both the buy and sell side and the market stays at that price level for a great deal of time compared to other levels in the profile. This can imply a “fair value area” for the asset. When price approaches a previous HVN (or fair value area) a sustained period of sideways movement is expected. The market is less likely immediately break through that price.

Low Volume Nodes (LVN) are the opposite. They are valleys (or significant drops) in volume at or around a price level. Low Volume Nodes are usually a result of a breakout rally or a breakdown. During a rally or a breakdown, there will typically be an initial burst of volume and then a significant drop off. The drop off can imply an “unfair value area” for the asset. When price approaches a previous LVN (or unfair value area), the market is much more likely to rally through or bounce off of that price level. Because it is seen as an unfair value area, the market will not spend as much time there compared to some other levels in the profile.

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EXAMPLE STRATEGY

Just like with most other tools or studies, Volume Profile has a number of uses. There are many trading strategies out there using Volume Profile as a key component. Below are the basics of one such strategy which is based on comparing the current day’s opening price to the previous day’s Volume Profile.

– If the current day opens above the previous day’s value area (but still below the Profile High) look for price to retrace back towards the Point of Control and then proceed to rise (the direction of the day’s open). Therefore during the retracement to the Point of Control, there is a buying opportunity.

– If the current day opens below the previous day’s value area (but still above the Profile Low) look for price to retrace back towards the Point of Control and then proceed to fall (the direction of the day’s open). Therefore during the retracement to the Point of Control, there is a selling opportunity.

– If the current day’s opening price is completely outside of the previous day’s profile (above the Profile High or below the Profile Low) this can be seen as a possible runner in the direction of the opening price relative to the previous day’s profile range.

SUMMARY

Volume Profile is an extremely valuable technical analysis tool that is used by traders everywhere. The key to Volume Profile’s continued relevancy is its versatility. It is a charting tool that truly does have a wide array of uses. Unlike many other studies, there is little to no debate about Volume Profile’s usefulness. The data that is provided by Volume Profile is indisputable, leaving it to the trader to find new and creative ways to use it. Even though in its simplest form, it is a great reactive method for discovering traditional support and resistance areas, traders are still coming up with ways to chart the indicator in predicative or proactive ways. Consider the trading strategy example given earlier in the article. Being able to compare a real-time event (the current day’s open) with historical events (the previous day’s volume profile) and make a trading decision based on the relationship is a great example of this.

HOW TO USE WITH TRADINGVIEW

  1. Navigate to https://www.tradingview.com/
  2. On the landing page, enter a symbol and click «Launch Chart»
  3. Within the Toolbar along the top of the chart select «Indicators» and choose the one you would like to add to your chart.
  4. Volume Profile has three different options for the type of Volume Profile you wish to use.
    1. Fixed Range – Allows the user to click and drag on the chart to select their own custom time range.
    2. Session Volume – Shows the Volume Profile of every trading session.
    3. Visible Range – Shows the Volume Profile of everything visible in the chart. Will scale automatically when scrolling.
  5. To make changes to your Indicator you will need to access the Formatting Window.
  6. You can access the Formatting Window by either clicking on the Blue «Format» button in the Chart Header next to the Indicator name, or by right clicking on the Indicator in the chart itself and selecting «Format».

INPUTS

Number of Rows

The number of rows to be calculated and shown.

Volume

Toggles between showing total volume for each row or splitting each row into buys and sells.

STYLE

Volume Profile

Toggles the visibility of the indicator.

Width (% of the Box)

Alters the width of the rows.

Placement

Place rows either left or right.

Show Values

Toggles the visibility of the actual numbers of buys and sells for each row.

Text Color

Determines the text color.

Up Volume

Determines the color as well as opacity for the Up Volume (Buys).

Down Volume

Determines the color as well as opacity for the Down Volume (Sells).

PROPERTIES

Last Value on Price Scale

Arguments in Header

Toggles the visibility of the indicator’s name and settings in the upper left hand corner of the chart.

Scaling

Scales the indicator to either the Right or to the Left.

How to Use Volume to Improve Your Trading

Volume is a measure of how much of a given financial asset has traded in a period of time. For stocks, volume is measured in the number of shares traded and, for futures and options, it is based on how many contracts have changed hands. The numbers, and other indicators that use volume data, are often provided with online charts. Looking at volume patterns over time can help get a sense of the strength or conviction behind advances and declines in specific stocks and entire markets.

Basic Guidelines for Using Volume

When analyzing volume, there are usually guidelines used to determine the strength or weakness of a move. As traders, we are more inclined to join strong moves and take no part in moves that show weakness—or we may even watch for an entry in the opposite direction of a weak move. These guidelines do not hold true in all situations, but they offer general guidance for trading decisions.

Key Takeaways

  • Volume measures the number of shares traded in a stock or contracts traded in futures or options.
  • Volume can be an indicator of market strength, as rising markets on increasing volume are typically viewed as strong and healthy.
  • When prices fall on increasing volume, the trend is gathering strength to the downside.
  • When prices reach new highs (or no lows) on decreasing volume, watch out; a reversal might be taking shape.
  • On Balance Volume and Klinger Indicator are examples of charting tools that are based on volume.

Trend Confirmation

A rising market should see rising volume. Buyers require increasing numbers and increasing enthusiasm in order to keep pushing prices higher. Increasing price and decreasing volume might suggest a lack of interest, and this is a warning of a potential reversal. This can be hard to wrap your mind around, but the simple fact is that a price drop (or rise) on little volume is not a strong signal. A price drop (or rise) on large volume is a stronger signal that something in the stock has fundamentally changed.

Exhaustion Moves and Volume

In a rising or falling market, we can see exhaustion moves. These are generally sharp moves in price combined with a sharp increase in volume, which signals the potential end of a trend. Participants who waited and are afraid of missing more of the move pile in at market tops, exhausting the number of buyers.

At a market bottom, falling prices eventually force out large numbers of traders, resulting in volatility and increased volume. We will see a decrease in volume after the spike in these situations, but how volume continues to play out over the next days, weeks, and months can be analyzed using the other volume guidelines.

Bullish Signs

Volume can be useful in identifying bullish signs. For example, imagine volume increases on a price decline and then the price moves higher, followed by a move back lower. If the price on the move back lower doesn’t fall below the previous low, and volume is diminished on the second decline, then this is usually interpreted as a bullish sign.

Volume and Price Reversals

After a long price move higher or lower, if the price begins to range with little price movement and heavy volume, this might indicate that a reversal is underway, and prices will change direction.

Volume and Breakouts vs. False Breakouts

On the initial breakout from a range or other chart pattern, a rise in volume indicates strength in the move. Little change in volume or declining volume on a breakout indicates a lack of interest and a higher probability for a false breakout.

Volume is often viewed as an indicator of liquidity, as stocks or markets with the most volume are the most liquid and considered the best for short-term trading; there are many buyers and sellers ready to trade at various prices.

Volume History

Volume should be looked at relative to recent history. Comparing today to volume 50 years ago might provide irrelevant data. The more recent the data sets, the more relevant they are likely to be.

Volume Indicators

Volume indicators are mathematical formulas that are visually represented in most commonly used charting platforms. Each indicator uses a slightly different formula, and traders should find the indicator that works best for their particular market approach. Indicators are not required, but they can aid in the trading decision process. There are many volume indicators to choose from, and the following provides a sampling of how several of them can be used.

On Balance Volume (OBV): OBV is a simple but effective indicator. Volume is added (starting with an arbitrary number) when the market finishes higher, or volume is subtracted when the market finishes lower. This provides a running total and shows which stocks are being accumulated. It can also show divergences, such as when a price rises, but volume is increasing at a slower rate or even beginning to fall.

Chaikin Money Flow: Rising prices should be accompanied by rising volume, so Chaikin Money Flow focuses on expanding volume when prices finish in the upper or lower portion of their daily range and then provides a value for the corresponding strength. When closing prices are in the upper portion of the day’s range, and volume is expanding, the values will be high; when closing prices are in the lower portion of the range, values will be negative. Chaikin money flow can be used as a short-term indicator because it oscillates, but it is more commonly used for seeing divergence.

Klinger Oscillator: Fluctuation above and below the zero line can be used to aid other trading signals. The Klinger oscillator sums the accumulation (buying) and distribution (selling) volumes for a given time period.

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