MT4 Volume Profile Indicator
Volume Profile is an advanced charting method that reflects trading activity (volume) accumulated over a given time period at specific price levels. The tool plots a histogram on a chart designed to identify dominant or significant price levels based on volume at price over a specified time period. The Volume Profile divides the total trading volume at a given price level over a specified time period by the total buying or selling volume over the same period. It then visualises and displays this information as a histogram, making it easily visible to the trader.
There are many trading strategies that use the Volume Profile as a key component. Typically, many traders use the tool precisely to determine the main support and resistance levels. To do this, traders rely on past price movements, volume behaviour and analyse them. This approach is useful because it helps determine the significance of price levels that the market has already been at.
The Volume Profile indicator is plotted on the asset chart. This approach makes it possible to visually see the market as a whole, identifying the most conceivable currency pairs and timeframes for trading.
How to trade using MT4 Volume Profile Indicator?
There are several options for finding market entry points:
- If the current day opens above the area of values of the previous day (but still below the high of the previous day’s profile), one should wait for a rollback or open a sell order to the control point of the previous days, and then open a buy order in the direction of the trend of the current day;
- If the current day opens below the previous day’s value area (but still above the previous day’s profile low), wait for a return or open a buy order back to the previous days’ checkpoint, and then open a sell order in the direction of the current day’s downtrend;
- If the current day’s open is completely outside the previous day’s profile (above the previous profile high or below the previous profile low), this can be considered as a possible strong trend towards the current open price towards the previous day’s profile range.
How to interpret MT4 Volume Profile Indicator?
Essentially, Volume Profile zones can be interpreted as zones of resistance and zones of support. The green colour of the diagram shows the volume of deals that the buyers have converted, and the orange one – the deals of the sellers.
There are several important levels to pay attention to when viewing the volume profile chart:
- Point of Control POC. This is the price level with the highest trading volume for the selected period. The most important level that traders track as it helps determine the placement of stop losses or the area to open buy or sell orders;
- Profile High. The highest achieved price level for the selected period;
- Profile Low. The lowest price level reached for the selected period;
- VA range: the range of price values in which most of the total volume is located. The default value is 70%;
- VAH – the highest price level within the range;
- VAL – the lowest price level within the range of values;
- High Volume Node (HVN). This is the peak volume at the price level. The market tends to spend a lot of time at this level because it is considered to be the fair value area where the price of an asset reflects its true value. When approaching previous high volume levels, the market may enter a trading range for an extended time period;
- Low Volume Node (LVN). The lowest volume at the price level. After the initial spike in volume, trading activity declines as market participants believe that the price level does not reflect the true value of the asset. When approaching previous low volume levels, the market tends to rally through that level.
MT4 Volume Profile Indicator input parameters
The Volume Profile Indicator has three input parameters:
- Trading session – start and end of a trading session;
- Max bars – the maximum number of bars for calculation;
- Profile calculation type -a type of profile calculation.
Type of calculation of MT4 Volume Profile Indicator
The Volume Profile Indicator assumes a choice of one of the two parameters – Volume and TPO.
The calculation with the Volume parameter assumes that the ranges and POCs are formed based on the volume. The time that the price spends at certain levels is not counted.
Calculation with the TPO parameter implies that the zones of values and POC are formed based on time and price. Volumes are not taken into account in this option.
Nordman Algorithms is not liable for any risk that you face using the software. Please, use the software on your own responsibility. The software is coded in accordance with a common known concept and Nordman Algorithms does not guarantee accuracy or trading performance of the software signals.