Knowledge of price levels with high trading activity can allow you to recognize support and resistance zones when trading and technical analysis. A great tool is the Volume Profile Indicator (also known as VPVR —Volume Profile Visible Range). If you’re not already familiar with the VPVR indicator, read this guide to learn what it is, how it works, and why traders tend to use it.
What Is the Volume Profile Indicator?
A Volume Profile Indicator in a visual form is a presentation of the trading volume for various price levels over a given time frame. Unlike other volume indicators such as true range where activity is indicated by time, the Volume Profile shows price at which activity occurred.
One such is a histogram that is displayed on the side of a price chart and helps light up the price ranges with most and least trading activity. As ranges, these can indicate areas of market interest and are very important for traders looking to identify support and resistance.
How It Works with the VPVR Indicator?
VPVR indicator looks over historical price and volume data. It computes the total volume traded at each price level in the period of time specified. This level of bar in the histogram reflects the means of such transactions, as their total height increases when activity increases.
Key Components of VPVR:
1. Point of Control (POC):
The highest trading volume in the visible range of the price level. It’s often considered a key level of support or resistance.
2. High Volume Nodes (HVNs):
Highly traded areas. Often these are price levels agreeable to buyers and sellers on value.
3. Low Volume Nodes (LVNs):
Low trading areas. Because of less interest, prices move quickly through these zones.
4. Value Area (VA):
Most of the trading volume falls within a range of prices of about 70 per cent, giving rise to the term ‘swath of prices’.
Why Traders Use the VPVR Indicator
The VPVR is a strategic indicator that’s used to recognize the regions of interest, reversal regions or continuation areas. Here are some key reasons why traders rely on it:
1. Support and Resistance Levels
- High volume areas carry great strength or weakness towards the way.
- When tested, low volume areas often exhibit quick price movements.
2. Market Structure Analysis
- Gives its insights about market trends and phases of consolidation.
- It identifies levels at which institutional activity may occur.
3. Entry and Exit Points
- The value area edges and POC are used by traders for exact entry and exit points.
- Frequently breakouts from low volume zones signal strong momentum trades.
4. Trend Confirmation
Price action plus volume makes for a confirmation of trends.
Application of the VPVR Indicator in trading
1. Support and Resistance spotting
— prices with high volume.
These will be zones where price can stall or reverse.
2. Analyzing Value Area Shifts
-Keep an eye for shifts in the position of the value area over time.
If a value area falls, it signals bearish sentiment; if a value area rises, this signal bullish sentiment.
3. Trading Breakouts
-To find price breaks, look for low volume zones.
-And these are often quick and large price moves.
4. Confirming Trends
-You can compare volume profile data to other traditional trend indicators like moving averages or RSI.
Benefits of the VPVR Indicator
1.Visual Insights:
It offers a simple, visual method of seeing how much volume exists throughout various price ranges.
2.Versatile Tool:
Good for day trading, swing trading and long term analysis of the maritme market.
3.Works Across Markets:
It can work in stocks, forex, cryptocurrencies, and futures.
4.Customizable:
Settings can also be adjusted for traders to focus on a particular time frames or price ranges.
Limitations of the VPVR Indicator
1.Dependent on Visible Range:
It only looks at price and volume data within the time frame you specified on the chart.
2.Not Predictive:
While useful for know the levels key where pricw might be unlikely rise or fall, it doesn’t predict future price movements.
3.Requires Confirmation:
It should however be used as an additional indicator or analysis technique to increase accuracy.
Alternatives to VPVR
If you’re exploring other volume analysis tools, here are some options:
1. Traditional Volume Bars:
Present overall trading activity over time.
2. On-Balance Volume (OBV):
You confirm price trend by tracking cumulative volume.
3. Market Profile:
Almost the same as the VPVR except that we are analyzing the time spent on each particular price level.
4. VWAP (Volume Weighted Average Price):
It gives highlights the average price weighted by volume.
The VPVR indicator is a useful tool to traders who want to know more about the market activity. It visualizes volume distribution across price levels, offering key support and resistance zone, potential breakout area, market sentiment information to the trader. So it’s best combined with other technical indicators and strategies.