What is Volume profile indicator and how to use it for trading

Volume profile indicator

Volume profile indicator is an indicator that shows volume of stocks or underlying traded at different price levels over a period of time.

Volume profile indicator shows this data as a histogram in a Y-axis (vertical) usually next to price levels. Example of volume profile indicator is below. In the below diagram of Nifty futures, we see that the price levels at which maximum volume has happened is around 14100 and 14200 levels. These levels do act as strong demand zones and provides immediate support levels.

Volume profile indicator - how to use volume profile
zerodha

Where can we find Volume Profile Indicator

Usually volume profile indicator is available on most of the charting platforms . You have to select indicators dropdown and search for volume profile and add it. Below image shows how to add volume profile indicator on Upstox charting platform .

Click to Open free demat account with Upstox and use Volume profile Indicator

How to plot volume profile indicator

Use of Volume profile indicator

Volume profile indicator is used in below ways

  • Finding Support and Resistance areas of stocks where demand and supply of stocks is likely to come it.
  • Understand distribution and accumulation zones of stocks
  • Enter up trending stocks after retracement to high volume profile regions.
  • Shorting a down trending stock after it bounces to high volume profile region.
  • Volume profile can be used to place good stop loss for your trade
Upstox

How much period to consider in chart for Seeing volume profile?

Usually it makes sense to include period in which high volume activity has happened to get a fair understanding of average price where supply and demand is there. Lets say in a stock last 10 days shows high volume, so you need to keep those 10 days in chart for understanding demand zones.

Fond longer time investment , we may want to see volume profile over a period of 6-12 months

Recommended Brokers

zerodhaNo 1 STOCKBROKER IN INDIA
Zerodha
Free equity & mutual fund investments | Flat ₹20 intraday and F&O trades
Rating
★★★★★
APPLY NOW
Angel BrokingGET FREE DEMAT ACCOUNT
Upstox
Fix brokerage of Rs. 20 per trade
Rating
★★★★
APPLY NOW
angel-brokingGET FREE DEMAT ACCOUNT
Angel Broking
0 Brokerage on Equity Delivery | Rs 20 per order for Intraday‎ and F&O trades
Rating
★★★★★
APPLY NOW

investobull
Investobull.com is a one stop place for all Finance resources We write on Finance , Trading , Investments and Economics. Follow us on Twitter , facebook and Youtube