How to use Volume Profile while Trading? – Technical Analysis Basics

By Trader Pit

July 8, 2021


If you are looking for technical analysis and do not know where to start, this short post is for you! In this short post, we will look at the most common technical analysis indicators. We will take a look at how to find a good entry for a trade, how to use volume profile, how implied volatility works, how to use price action and finally, a look at how to trade using all this information.

This article also titled as “Trading with Volume Profile in Technical Analysis” will cover several things. The first is how to use Volume Profile while Trading. The second is how to use Volume Profile for Technical Analysis. The third is for how to use Volume Profile in Technical Analysis. The fourth is how to use Volume Profile for Technical Analysis. The fifth is for how to use Volume Profile for Technical Analysis. The six is to use Volume Profile for Technical Analysis. The seventh is for how to use Volume Profile in Technical Analysis. The eighth is how to use Volume Profile for Technical Analysis. The ninth is to use Volume Profile for Technical Analysis. The tenth is for how to use Volume Profile in Technical Analysis. The eleventh is to use Volume Profile for

Understanding the Volume Profile for Technical Analysis: Nowadays, the success of a film depends on the number of people who see it. If a film is expected to be seen by a large audience, then a large audience will see the film, which will make it successful. Here the number/volume of viewers plays a very important role in the success of the film.

If we take the example of a television series or any other online series, its success is measured by the number of viewers. Game of Thrones (GoT) is a classic example. It has one of the highest ratings in the history of online content. In the end, it all comes down to volume or the number of spectators.

Similarly, in trading, volume is the number of shares traded from one day to the next. If there is no volume, the stock price will not move. In short, volume plays an important role in determining movement. In this article we’ll take a look at what a volume profile is, how volume is calculated, the correlation between volume and price, and the correlation between candlesticks, supports and resistances, and volume. Let’s get started.

What is a volume profile?

Simply put, volume is the number of shares traded in a given company in a given period. When a price movement occurs with high volume, it is considered more reliable. And we can expect this movement to continue. However, if the movement occurs at a low volume, the authenticity of the movement is always questionable.

To confirm a pattern or apply a technical indicator to the market, the volume profile plays the most important role. It plays an important role in confirming market trends or patterns. It also plays a very important role in understanding the prospects of the buyer or seller. Without significant volume, even the strongest technical indicator or pattern can be of little value.

Quick tip: Market profile or MKTP is a synonym for volume profile. They are used interchangeably.

How is volume calculated?

From the above explanation, we understand that volume simply means the number of shares bought or sold in a given period. The more active the action, the higher the volume, and vice versa.

For example, in the case of RIL, if 50 shares were bought at a price of Rs. 1,900 and 50 shares were sold, the volume here is 50 (not 100). To correctly calculate the volume of transactions, there must be a buyer for each seller. Don’t assume the volume is 100 (50 buying + 50 selling). Let’s illustrate this with an example:

So from the above table we can see the different buying and selling activities of a stock for different time levels. Buyers and sellers meet to create volume for the stock. And cumulative volume is the sum of all trading volumes for the day.

The following tables show the evolution of the volume of the most active securities market of the NSE with a time interval of 40 minutes.

Figure 1: Most active stock at 11:42 am (07/21/2020, NSE India).

Figure 2: The most active stock is at 12.22 (07/21/2020, NSE India).

If we now compare with the above tables, we see a table with the volumes of the most active stocks and their change with an interval of 40 minutes.

If we take the example of Bajaj Finance in the table, we see a price change of Rs 8 lakhs (decrease) and the volume has increased by almost 50% in 40 minutes. So we can say that the movement with this band was real and not artificial. Any move with significant volume helps technical charts and indicators take shape.

Correlation between volume and price

When trading volumes, the previous price and volume trend is very important. When a movement takes place with a volume close to or above the average, this movement is more important than a movement with low volume.

Let us now understand the correlation between volume and price using the following table:

When the price increases with increasing volume, the market expects the upward trend or strength to continue. And if the same move occurs on low volume, we can say that we should be careful and plan carefully for the next move.

Similarly, if the stock price falls while volume increases, the downward trend can be expected to continue and be extended. And if the same movement occurs with less volume, we should be cautious about the next phase of this movement. A similar interpretation can be made for Rangi markets.

Participants on days with low and high load

If the market is trading with low volume, you can see that there are many traders in the market.

However, when the market is trading at a high volume, there is a lot of institutional buying and selling in the market. Movements with greater volume have more persuasive power and are more likely to be sustained in the near future.

 

Short note
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Correlation between candles, S&R and volume

If a candlestick pattern dictates certain trading patterns, if the signal arrives near support and resistance levels, and if in addition the volume profile matches the technical signals, then we can say that the trade has a very high probability of success.

In other words: The combination of technical factors and volume allows you to generate strong trading signals. Traders can benefit greatly if they notice it in time.

Also read : Introduction to candlestick figures – Individual candlestick figures

Supplement

Let’s briefly recap what we talked about in this article:

  • Volume is one of the key indicators for understanding market trends.
  • This gives a very strong boost to our technical vision of the market.
  • When the market is trading with low volume, it can be said that small traders are involved in the movement.
  • If the price increases with volume, we can expect the upward or downward movement to continue (and vice versa).
  • And when the market is trading at a high volume, that is usually a sign that institutional players are participating in the market.

That’s it for this post on volume profile. I hope this was helpful. If you have any doubts about volume in stock trading, feel free to leave comments below. I’d like to help you. Good business.

Hitesh Singhi is an active derivatives trader with over 10 years of experience in trading futures and options on Indian equities and international energy commodities like Brent, WTI, RBOB, gasoline etc. He has traded on BSE, NSE, ICE and NYMEX. Hitesh’s credits include a degree in business management and an MBA in finance. Follow Hitesh here on Twitter!

Frequently Asked Questions

How do you use a volume profile indicator for trading?

A volume profile indicator is used to identify trading opportunities in the market. It is a graphical representation of the volume of a particular security over a given time period. The volume profile indicator is typically used to identify trading opportunities in the market.

What is volume profile in technical analysis?

Volume profile is the change in volume of a security over a given time period.

How do you analyze a volume profile?

A volume profile is a graphical representation of the total volume of a substance in a given time period.

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About the author

Trader Pit

A yogi who like Finance and Technology. I have been in Indian Stock market for over 12 years now as financial analyst, portfolio manager, trader. Now, I focus on Yoga, Financial Education & Long term investing. 

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