{"id":207713,"date":"2024-06-07T09:29:32","date_gmt":"2024-06-07T13:29:32","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=207713"},"modified":"2024-06-07T09:50:35","modified_gmt":"2024-06-07T13:50:35","slug":"chart-advisor-the-volume-profile-indicator","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/chart-advisor-the-volume-profile-indicator\/","title":{"rendered":"Chart Advisor: The Volume Profile Indicator"},"content":{"rendered":"\n<p>By <a href=\"https:\/\/cmtassociation.org\/presenter\/shane-murphy\/?hid=90d17f099329ca22bf4d744949acc3331bd9f9f4&amp;did=13319416-20240607&amp;utm_campaign=chart-advisor_newsletter&amp;utm_source=investopedia&amp;utm_medium=email&amp;utm_content=060724\" target=\"_blank\" rel=\"noreferrer noopener\">Shane Murphy, CMT<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-the-volume-profile-indicator\"><strong>The Volume Profile Indicator<\/strong><\/h2>\n\n\n\n<p><em>Investopedia is partnering with CMT Association on this newsletter. \u00a0The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services.<\/em><\/p>\n\n\n\n<p><strong>The Volume Profile Indicator<\/strong><\/p>\n\n\n\n<p>When a technical analyst evaluates a price chart, he or she will identify horizontal levels of supply (resistance) and demand (support). These levels will help the analyst determine trend, manage risk, and develop a complete view of the asset. One way to confirm if a price level is important and holds price memory, is to apply the volume profile indicator (VPI). Unlike traditional volume, which provides a temporal view of the asset\u2019s relationship with volume, VPI ignores timeframe and reviews volume at specific price levels. In other words, instead of identifying the total volume of stock XYZ on this specific day, week or month, VPI tells us at what price the volume occurred. For this reason, VPI is presented as a horizontal histogram. The thought is that if a large number of shares are exchanging hands at a certain level, it is more likely this level holds true price memory and will behave as support\/resistance. <\/p>\n\n\n\n<p>The VPI level with the highest volume is referred to as the point of control (POC). The POC can be used to help confirm support\/resistance levels. For example, the below chart highlights a liquid market index fund with a volume profile running from the October \u201922 low to the Summer \u201923 high. The POC confirmed the support\/resistance zone ~$410 per share. Months later the asset successfully tested this support zone and witnessed demand bid prices higher.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1100\" height=\"486\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic1-3-1100x486.png\" alt=\"\" class=\"wp-image-207714 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic1-3-1100x486.png 1100w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic1-3-700x309.png 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic1-3-300x132.png 300w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic1-3-768x339.png 768w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic1-3.png 1515w\" data-sizes=\"(max-width: 1100px) 100vw, 1100px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1100px; aspect-ratio: 1100\/486;\" \/><\/figure>\n\n\n\n<p>VPI not only helps us identify support\/resistance zones, but it can also aid our understanding of trend. When the POC is near the lower end of the profile amid what appears to be a healthy uptrend, we should reevaluate and ask ourselves why is volume declining at higher price levels? The below is a great example of an asset appearing to be in a strong uptrend, but the volume profile is not confirming the move higher. Eventually, price finds its way back to the POC and retests this level several times before breaking down.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1100\" height=\"486\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic2-5-1100x486.png\" alt=\"\" class=\"wp-image-207721 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic2-5-1100x486.png 1100w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic2-5-700x309.png 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic2-5-300x132.png 300w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic2-5-768x339.png 768w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/06\/pic2-5.png 1515w\" data-sizes=\"(max-width: 1100px) 100vw, 1100px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1100px; aspect-ratio: 1100\/486;\" \/><\/figure>\n\n\n\n<p>The volume profile indicator provides a unique way to analyze supply and demand. Its application can vary depending on the asset or the analyst, but it remains an important tool in the technical analyst\u2019s toolkit.\u00a0<\/p>\n\n\n\n<p><strong>About This Week&#8217;s Author<\/strong><\/p>\n\n\n\n<p><a href=\"https:\/\/cmtassociation.org\/presenter\/shane-murphy\/?hid=90d17f099329ca22bf4d744949acc3331bd9f9f4&amp;did=13319416-20240607&amp;utm_campaign=chart-advisor_newsletter&amp;utm_source=investopedia&amp;utm_medium=email&amp;utm_content=060724\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>Shane Murphy, CMT<\/strong><\/a> has been a CMT Charterholder since 2022. He is currently a Wealth Management Associate at Michael Roberts Associates, Inc. where he assists in portfolio construction, investment research, and financial planning. <\/p>\n\n\n\n<p>&#8212;&#8212;&#8211;<\/p>\n\n\n\n<p>Originally posted on June 7th, 2024<\/p>\n","protected":false},"excerpt":{"rendered":"<p>When a technical analyst evaluates a price chart, he or she will identify horizontal levels of supply (resistance) and demand (support). These levels will help the analyst determine trend, manage risk, and develop a complete view of the asset. One way to confirm if a price level is important and holds price memory, is to apply the volume profile indicator (VPI). Unlike traditional volume, which provides a temporal view of the asset\u2019s relationship with volume, VPI ignores timeframe and reviews volume at specific price levels. In other words, instead of identifying the total volume of stock XYZ on this specific day, week or month, VPI tells us at what price the volume occurred. For this reason, VPI is presented as a horizontal histogram. The thought is that if a large number of shares are exchanging hands at a certain level, it is more likely this level holds true price memory and will behave as support\/resistance. <\/p>\n","protected":false},"author":186,"featured_media":207716,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6,8,9,22,23,3],"tags":[],"contributors-categories":[13686],"class_list":{"0":"post-207713","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-north-america","8":"category-region","9":"category-securities","10":"category-stocks","11":"category-technical-analysis","12":"category-traders-insight","13":"contributors-categories-investopedia"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Chart Advisor: The Volume Profile Indicator<\/title>\n<meta name=\"description\" content=\"When a technical analyst evaluates a price chart, he or she will identify horizontal levels of supply (resistance) and demand (support). These levels...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.interactivebrokers.com\/campus\/wp-json\/wp\/v2\/posts\/207713\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Chart Advisor: The Volume Profile Indicator | IBKR Campus US\" \/>\n<meta property=\"og:description\" content=\"When a technical analyst evaluates a price chart, he or she will identify horizontal levels of supply (resistance) and demand (support). These levels will help the analyst determine trend, manage risk, and develop a complete view of the asset. One way to confirm if a price level is important and holds price memory, is to apply the volume profile indicator (VPI). Unlike traditional volume, which provides a temporal view of the asset\u2019s relationship with volume, VPI ignores timeframe and reviews volume at specific price levels. In other words, instead of identifying the total volume of stock XYZ on this specific day, week or month, VPI tells us at what price the volume occurred. For this reason, VPI is presented as a horizontal histogram. 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These levels will help the analyst determine trend, manage risk, and develop a complete view of the asset. One way to confirm if a price level is important and holds price memory, is to apply the volume profile indicator (VPI). Unlike traditional volume, which provides a temporal view of the asset\u2019s relationship with volume, VPI ignores timeframe and reviews volume at specific price levels. In other words, instead of identifying the total volume of stock XYZ on this specific day, week or month, VPI tells us at what price the volume occurred. For this reason, VPI is presented as a horizontal histogram. 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