Volume and Volume Profile

[00:00:00.05] - Speaker 1
Price and volume are the foundation of technical analysis. In this lesson, we look at the importance of volume. Volume is the total number of shares or contracts traded in a given period. It provides crucial insights into the strength and conviction behind price movements. High trading volume often suggests strong interest and commitment to a price direction, while low volume might indicate uncertainty or a lack of consensus among traders.

[00:00:28.23] - Speaker 1
In charts, volume is represented with a histogram below the price. Each bar of the histogram represents the number of shares traded within each candle. You can search within the indicator list and add it to the chart. Understanding volume goes beyond just recognizing high or low activity. For instance, an increase in volume during a price uptrend reinforces bullish sentiment, whereas a decline in volume during the same trend might signal weakening.

[00:00:58.20] - Speaker 1
A surge in volume at a price bottom may indicate a bearish to bullish reversal, especially when accompanied by a bullish price pattern. Volume is a key metric for technical traders to better understand price action. Volume can validate or undermine the prevailing trend. In a rising market, increasing volume confirms the uptrend, suggesting that more participants are supporting the price increase. On the other hand, if the market continues to rise, if volume is declining, it may imply the trend is losing steam and a reversal could be imminent.

[00:01:35.00] - Speaker 1
In a downtrend, increasing volume indicates strong selling pressure, while decreasing volume could signal a potential reversal or pause in the downtrend. Volumes are also very important at breakout points. If the breakout is done with high volume, then there could be a trend change or trend confirmation. Let's do some examples. The first is represented by volumes in a trending period.

[00:02:01.14] - Speaker 1
As we can see, in this case we are in the presence of a bullish trendline. On the Moderna stock, we are seeing a strong volume and price growth. The price then starts a period of retracement followed by a sharp decrease in volume. Then we see the price start to rise again and the red line represents a resistance level. The white rectangle represents the breakout point.

[00:02:25.02] - Speaker 1
As we can see, the price has a strong upward momentum. Also confirmed by the volumes. The price reaches a maximum and starts falling. The volumes in this case are also decreasing. Now let's look at how volumes behave at breakout points.

[00:02:40.15] - Speaker 1
Here we see the Delta stock during the breakout of the bullish trend line. As we can see, the volumes are increasing and confirm the start of a downward trend. Then we have an example of a breakout on Boeing stock. During the March collapse, we witnessed a descending triangle formation. The white rectangle represents the breakout.

[00:03:00.18] - Speaker 1
This is followed by a sharp change in price and growth in volumes. So far we have looked at the volume indicator. This indicator shows us the number of shares traded in a specific time period. There is another way to look at volume which is the volume at different price levels. For this analysis, we want to see how the market reacts in terms of volume when the price reaches a specific price or range.

[00:03:25.01] - Speaker 1
For this, we use another indicator, the volume profile on TradingView. What this indicator tells us is the number of traded shares for a specific price range. The blue histogram bars represent the buy volume while the yellow bars represent the sell volume. In this example, we see that the majority of the volume for the period was traded from the levels of $318 and $339. You can find the volume profile under the indicators of the TradingView platform.

[00:03:57.22] - Speaker 1
Once you type it in, you have different options. The session volume represents the volume in the trading session. It can be used on intraday time frames for for stocks, it will represent the volume from 9:30am to 4pm Eastern Time. Visible range volume profile shows the volume in the area selected in the graph. The one we normally use is the fixed range volume profile.

[00:04:23.25] - Speaker 1
This allows us to select the range we are looking to consider and plot the volume in that range. Similar to Fibonacci retracements, we can plot the volume during a trending period or by selecting a swing low and high pivot points. Now let's do an example on how we can use the volume profile as a signal for our trading. First, we use the volume profile as support. In combination with other indicators we want to see price areas that could attract more buyers and stop the price from going lower.

[00:04:54.29] - Speaker 1
In this example, we see a strong uptrend on the Tesla stock. We use this move to draw our volume profile. The price starts to retrace towards the point of control highlighted by the red line. This level acts as a support zone. When the price reaches this level, we can use this signal in conjunction with other indicators.

[00:05:15.21] - Speaker 1
In this case, we look for confirmation coming from the rsi. For a potential long trade, we can apply the same principles on a downtrend and using the volume profile as resistance. This concludes the lesson on volume and how we use it in trading.