3 More Trades With Volume

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Trading Volume

Индикатор Trading Volume отображает объемы сделок на Покупку и на Продажу на текущем баре, либо в среднем за определенное указанное количество баров. Оба объема отображаются одновременно зеленым и красным цветами, для объемов сделок на Покупку и на Продажу, соответственно. Процентное соотношение обоих объемов также показывается теми же цветами. Объемы покупок и продаж отображаются в виде Быков и Медведей (Bulls & Bears).

Примечание: Данный индикатор работает на любом таймфрейме и валютной паре

Методы расчета:

Есть три способа проведения расчетов (можно выбрать подходящий во входных параметрах)

Первый: при выборе (CalculationBy = BidRatio)

Индикатор рассчитывает объемы Покупок и Продаж на основе

Цена Bid (Цена Close)

Означает, что Быки = Цена Bid – Цена Low

Медведи = Цена High – Цена Bid

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Второй: при выборе (CalculationBy = OpenRatio)

Индикатор рассчитывает объемы Покупок и Продаж на основе

Open Price – Цена открытия

Означает, что Быки = Цена High – Цена Open

Медведи = Цена Open – Цена Low

Третий: при выборе (CalculationBy = BodyRatio)

Индикатор рассчитывает объемы Покупок и Продаж на основе

Длина тела свечи делится на общую длину свечи по отношению к ее направлению

How to Read Volume Profile Structures

The article is authored by Ivan Delgado, Market Insights Commentator at the brokerage Global Prime. This content aims to provide an insightful look into topics of interest for traders such as volume profile analysis. Feel free to follow Ivan on Twitter & Youtube . Make sure you join our discord room if you’d like to interact with Ivan and other like-minded traders. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. Also, find out why Global Prime is the highest-rated broker at Forex Peace Army.

If interested to watch a Youtube video specifically prepared to complement the teachings of this article, you can access the presentation via this link.

As a trader, you are probably accustomed to using concepts such as horizontal lines of support/resistance, trend lines, Fibonacci retracements, round numbers, or other forms of studies to spot reactive areas in your chart, right?

What if you could add the study of volume through the Y-axis of your chart to pinpoint with striking accuracy areas where the price may see a reversal. What if you could also gain an unfair yet real advantage by anticipating the type of market context most suitable to trade with the trend based on the different volume profile structures by the end of the New York close?

In this article, I will unveil an extremely useful tool, widely used by banks and financial institutions, that goes by the name of “volume profile”. Firstly, credit where is due. The father of market profile — from where volume profile evolved from — , is a futures trader named Steidlmayer. Here is a link to his book “ Trading with Market Profile”. Steidlmayer joined the Chicago Board of Trade in 1963, and has been an independent trader ever since.

What Is Volume Profile?

There are two ways of observing the total volume transactions in any market. As a spot forex trader, you can tap into tick volumes as an accurate visual representation of the total traded volume in the X-axis, which would then make your analysis be based on time.

Alternatively, you can carry out your volume study through the vertical Y-axis, in which case, you are analyzing the total activity based on price levels. It is this latter study what volume profile is about; it’s a histogram of the amounts bought and sold at specific price levels as opposed to specific times.

The volume profile allows any trader to evaluate the market context to keep track of the never-ending auction process. That’s what a market is at the end of the day, a constant negotiating process to find equilibrium/agreement (via the accumulation of transactions at a certain level), and the ones that were perceived too cheap or too expensive (no volume found). The art of reading volume profile is all about studying the anatomy of the market auctions.

Before taking things to the next level, allow me to walk you through some basics. When drawing your volume profile in the chart, you must become intimately familiar with the following values:

1. Point of Control (PoC): It refers to the area in the chart with the most traded volume activity. This is by far the most relevant area you want to monitor as it can help to define the placement of your stops or the areas in the chart where you might find the most pristine entry levels. The highest concentrated area of volume for a particular period of time we will call it PoC or Point of Control and you will be surprised how many times it acts as a wall on a retest. Traders tend to factor this in as an area of support or resistance.

2. High Volume Nodes (HVN): Sub-sequences in the chart with high volume activity. While not as powerful nor symbolic as the PoC, the HVN is also a powerful area as it also represents increased trading activity.

3. Value Area (VA): The range of price levels in which a specified percentage of all volume was traded. By default, the industry standards tends to be 70%. Once I explain the principle of the distribution curve below, it will become much clearer why the default number is the 70%, bear with me.

There are three different types of volume profiles to use in your charts. When you first call the volume profile option through the widely popular charting package trading view, the options include:

  • Fixed Range
  • Visible Range
  • Session Volume (Preferred)

I personally find the combination of the daily price action activity and its respective volume flows at specific price levels the most relevant approach as I will demonstrate in the next paragraphs. The session volume allows you to constantly obtain an update to re-evaluate the market, whereas the assessment of the fixed range or the visible range is more discretionary.

That said, the fixed and visible range options also serve as useful tools depending on the purpose of your analysis, that’s why I will also spend some time going through the most valuable benefits of its use.

Fixed Range: Selection Of Interest Levels A La Carte

Trading the markets, especially if you are an intraday trader, involves constant interaction with your charts. You are constantly looking for areas that you can lean against to take certain actions. Right? This first fixed range option allows you to select any area in the chart to deconstruct the total activity. This is a tool that can be of enormous value if you are looking to tighten or trail your stops as well as spotting areas of most interest to enter your positions.

Let’s say that you wanted to play a short in the EUR/USD 30m chart after the breakout of the range. A fairly conventional strategy would have been to wait for the price to break below the two horizontal support levels and enter short on a retest of either one of them. The next logical question would then be, where would you place your stop? If you are trading conservatively, you’d probably be placing your stop somewhere above the 1.16 in order to leave enough wiggle room in case the rebound returns back into the range.

However, if you think about it, there are other areas in the chart that still make a lot of sense to capitalize on. If you were interested in tightening your stop in such a magnitude that your short trade could exploit the prospects of a much larger risk reward, you could then be tapping into the power of the fixed range volume profile to identify at what price level after the range breakout the highest concentration of volume occurred. You could then use this as an area of relevance to assist your action as a seller. In the example, it may have been a great area to play with a much tighter stop.

There is a multitude of examples I could provide about the usefulness of the fixed range volume profile. However, since I want the core of this tutorial to be about the session volume structures, I’d refrain from further chart illustrations unless you want me to (post comments below). I am sure you can figure out how it could be of benefit to you, depending on your trading style.

Visible Range: The Macro View Of The Market

As the name indicates, the visible range option unpacks as much trading activity as data is in your chart. It portrays the big picture view of the most-traded price levels over a specified period of time.

This option is most suited as part of your daily or weekly analysis to spot areas of interest in the chart. By stepping back and projecting an eagle-view from a macro level, it helps you to easily identify key supports and resistances, which is what I mainly suggest to use the visible range for.

One of the most powerful approaches that I recommend is to select your macro areas of interest by zooming out your charts. Once done, you can start drawing horizontal rectangles at every high volume nodes (in black) or low volume node (in red). The areas highlighted will be by far the most relevant that you want to be paying attention going forward.

Session Volume: In Sync w/ The Day-To-Day Context

While the above volume profile options are by themselves very powerful, I refuse to accept that any can beat the ability to be reading the daily auctions.

The auction process in the last 24h of trading provides a roadmap from which to pre-plan your next trading day. If by the end of trading in NY, you are seeking out answers to the questions: What side is in control? Are buyers/sellers accepting higher/lower levels? What side is trapped and therefore has the higher chances of bailing out? All these questions and many more can find an answer via the session volume profile.

Types Of Volume Profile Structures

Single Distribution — Inconclusive Bias

If in the last 24h, the negotiating process ends up with no side in control of the price action, this is represented in the chart by a belly-type curve formation. At the extremes, you can clearly see the tapering of volume, which means an exhaustion of prices amid the lack of sufficient liquidity to find equilibrium. The dynamics of price discovery then suggest that price must revert back to the mean to find new two-way business/acceptance levels.

This structure leads to what’s often referred to as a market in a range. If you think beyond the conventional technical education, the formation of a range is nothing more than the test and failure to agree on higher or lower levels.

The market will constantly be exploring new prices up and down. However, what’s really important is not so much whether or not a level has been tested but the ability by market forces to accept it, thus building value. The thicker the volume on the Y-axis of the histogram, the more value is built as buyers and sellers come to agree on the new area of interest to transact business.

So, let’s tackle the key question. How can we get prepared to trade these structures the following day? Whenever we are presented with a single distribution aka a range, the areas of interest will include the extremes of the range or alternatively, the side in control of the POC (Point of Control).

As the chart below illustrates, the upside edge of the previous day’s single distribution never came even close to be re-rested, but what we did get was a clear rejection off the POC, which then led to a breakout of the range.

In the next example, we have the creation of another single distribution structure. The next day, the price recovers above the POC (red line) and starts to find acceptance with a subsequent backside rejection. That’s a major clue that the resolution of the range-bound conditions might come to a successful conclusion for the interest of the buyers. The moment that in a range the POC starts to act as support or resistance, that’s the first important hint that as a trader you want to pay close attention to gauge the next directional bias.

In the majority of cases, whenever we end up with a single distribution structure, the POC for that day will come nearby the 50 mid-point of the day’s range. This is not a coincidence, as one of the characteristics of the single distribution is its symmetrical structure in line with the principles of the bell or normal distribution curve.

One of the key lessons from the tutorial about the 4 Pillars in Forex included the relevance of the bell curve, which happens to be one of the backbones’s behind statistics and probability theory. It is also essential to understand for you as a trader if you are going to dig deeper into the study of volume profiles.

Remember that one of the natural laws of statistics is that as we increase the repetitious trials of random events that arise from flipping a coin, it results on a more pronounced skewness of results towards the center of the chart or bell shape. This is known as the central limit theorem. This is precisely what’s at play when we see the single distribution structure in volume profile. We have more and more order activity coming through the books with the pre-condition of not creating enough of an imbalance is supply or demand.

As the volume keeps increasing by N = number of times a new order comes in (times someone — human or algos— take a trade), the more pronounced the shape becomes, with the creation of another universal truth in statistics, that is, standard deviations. This states that over 68% of the volume will be accumulated under 1 standard deviation (in blue), while 95% of the volume will come within 2 standard deviations (in red). Now you will understand why the standard market value of a volume profile tends to be 70%.

Multiple Volume Distributions — Directional Flows

It refers to an auction process that creates two or more areas of value via a noticeable volume accumulation in the histogram. In the majority of cases, we will have the creation two distributions, less so a triple distribution structure. In the illustration below, you can find an example of a double distribution day.

As part of the double distribution structures, there are up to 4 subcategories we can classify. Each one of these structures suggests the likelihood of a distinctive price pattern to be expected the next day.

The critical factors that we must account for when evaluating multiple distribution structures include the number of thick areas in the histogram (value built) and the price close. There is a strong dependence on where the price closes by the end of the NY session to evaluate the next day’s play.

Let’s now break down these structures.

Short L-Shape (No Trapped Longs)

Following up with the example of the EUR/USD, in the following 24h, the pricing of the pair created a double distribution structure. As part of this formation, we now need to classify what type of structure it is based on where most of the volume was traded, as depicted by the POC (Point of Control).

On Oct 24, the price spent only a brief period of time before selling-off, leading to a price sequence of low-volume bars through the histogram. As the dust settled, buyers and sellers started to agree on the next level of equilibrium near the lows of the day around the 1.14 area.

This market dynamics are one of the most powerful for an ultimate trend continuation. If we were to decipher the clues behind the auction process, via volume profile, it clearly indicates that the market agrees on the value lower.

The fact that the majority of the volume was accumulated near the lows, and most importantly, with the price closing around the lows of the day near the POC, is a strong statement that the market is not interested in profit-taking.

Therefore, any potential rebound would most likely see sellers committed to adding to their short positions. This is a pattern that runs the risk of resulting in shallow rebounds before the continuation of the trend.

I will also illustrate below what a triple distribution looks like. Here it goes.

Volume of Trade

What is Volume of Trade

Volume of trade is the total quantity of shares or contracts traded for a specified security. It can be measured on any type of security traded during a trading day. Volume of trade or trade volume is measured on stocks, bonds, options contracts, futures contracts and all types of commodities.

Basics of Volume of Trade

Volume of trade measures the total number of shares or contracts transacted for a specified security during a specified time period. It includes the total number of shares transacted between a buyer and seller during a transaction. When securities are more actively traded, their trade volume is high, and when securities are less actively traded, their trade volume is low.

Each market exchange tracks its trading volume and provides volume data. The volume of trade numbers are reported as often as once an hour throughout the current trading day. These hourly reported trade volumes are estimates. A trade volume reported at the end of the day is also an estimate. Final actual figures are reported the following day. Investors may also follow a security’s tick volume, or the number of changes in a contract’s price, as a surrogate for trade volume, since prices tend to change more frequently with a higher volume of trade.

Volume tells investors about the market’s activity and liquidity. Higher trade volumes for a specified security mean higher liquidity, better order execution and a more active market for connecting a buyer and seller. When investors feel hesitant about the direction of the stock market, futures trading volume tends to increase, which often causes options and futures on specified securities to trade more actively. Volume overall tends to be higher near the market’s opening and closing times, and on Mondays and Fridays. It tends to be lower at lunchtime and before a holiday.

In recent times, high-frequency traders and index funds have become a major contributor to trading volume statistics in U.S. markets. According to a 2020 JPMorgan study, passive investors like ETFs and quantitative investment accounts, which utilize high-frequency algorithmic trading, were responsible for 60 percent of overall trading volumes while “fundamental discretionary traders” (or traders who evaluate the fundamental factors affecting a stock before making an investment) comprised only 10 percent of the overall figures.

Traders and Volume of Trade

Traders use various trading factors in technical analysis. Trade volume is one of the simplest technical factors analyzed by traders when considering market trades. The trade volume during a large price increase or decrease is often important for traders as high volumes with price changes can indicate specific trading catalysts. High volumes associated with directional changes in price can also help to reinforce support for the value of a security.

Volume levels can also help traders decide on specified times for a transaction. Traders follow the average daily trading volume of a security over short-term and longer-term periods when making decisions on trade timing. Traders can also use several technical analysis indicators that incorporate volume. The Securities and Exchange Commission (SEC) regulates sale of securities by traders. According to Rule 144, sellers cannot make security sales exceeding 1% of outstanding shares of the same class being sold. (See also: How to Use Volume to Improve Your Trading)

Key Takeaways

  • Volume of trade refers to the total number of shares or contracts exchanged between buyers and sellers of a security during trading hours on a given day.
  • It is a measure of the market’s activity and liquidity. Higher trading volumes are considered good because they mean more liquidity and better order execution.

Example of Volume of Trade

Suppose a market consists of two traders. The first trader buys 500 shares of stock ABC and sells 250 shares of XYZ. The other trader purchases 500 shares and sells 250 shares of stock DEF to the first trader. The total volume of trade in the market is 1000 (500 shares of ABC +250 XYZ shares + 250 shares of DEF).

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