Getting started with Volume Profile

Volume profile is a technical analysis tool used to visualize the distribution of trading volume at different price levels in a given time period. This information can be used by traders to identify key levels of support and resistance, and to make decisions about when to enter or exit a trade.

The basic concept of volume profile is to plot the volume of trades at each price level during a specified time period. This can be done using a histogram, with the x-axis representing the price level and the y-axis representing the volume of trades. The resulting chart is called a volume profile chart.

One of the key benefits of volume profile is that it can help traders identify key levels of support and resistance.

Volume profile chart

Another important aspect of volume profile is the ability to identify areas of high and low volume. High volume areas are characterized by a large number of trades at a specific price level, indicating strong buying or selling activity. Low volume areas, on the other hand, are characterized by a small number of trades at a specific price level, indicating weak buying or selling activity.

We can often use low volume areas as support and resistance and high volume areas as targets and inflection points.

In summary, volume profile is a powerful technical analysis tool that can be used by traders to identify key levels of support and resistance, and to make decisions about when to enter or exit a trade. By plotting the volume of trades at each price level during a specified time period, traders can gain valuable insight into the buying and selling activity in the market.

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