XS
SM
MD
LG
XL

A Richer Technical View: Analyzing Volume by Price

The thinkorswim Volume Profile study helps traders analyze volume by price. Learn more about this tool and how you can use it to identify dynamic support and

Print
https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Slice of cake: the thinkorswim Volume Profile indicator offers a richer technical view of volume by price
2 min read

Tired of trying to guess where support and resistance levels are located for the underlying instruments you’re trading? Do you want a deeper view of the supply and demand dynamics currently at work in stocks, futures, or any other investment in which you can measure volume? Look no further, because the thinkorswim® Volume Profile study can help shed new light on support and resistance.

Different Dimension of Price/Volume

The Volume Profile study displays trading activity over a specified time period at specific price levels. Unlike a typical volume study that aggregates volume for a specified time period, like daily, and displays a vertical column of the total volume for that period, the Volume Profile study plots a horizontal histogram of volume traded at specific prices.

The widest horizontal row of the Volume Profile indicator defines the specific price at which the most volume has traded over the specified time period. This specific price is referred to as the point of control (POC). The range of prices around the POC that contain 70% of total volume for the period is called the value area.

Figure 1 shows an example of the POC and value area in the Volume Profile study applied to the E-mini S&P 500 Index Futures (/ES) on a year-to-date chart. The POC is highlighted by the red horizontal row at 2,051.5; the value area is highlighted in the purple region between 1,921.00 and 2,125.50. (The /ES trades in 0.25-point increments.)

Volume Profile indicator (price by volume)

FIGURE 1: VOLUME BY PRICE IN THINKORSWIM.

To apply the Volume Profile study, log in to the thinkorswim trading platform and click Charts > Studies > Add Study > All Studies > T – V > VolumeProfile. Data source: CME. Chart source: the TD Ameritrade thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Practical Application of Volume Profile

Analyzing a Volume Profile chart is a bit different from classical technical analysis. Let’s walk through a couple of hypothetical scenarios.

First, observe in figure 1 that /ES recently rallied up to new highs, above the value area high at 2,125.50. Put another way, the /ES is trading above its value area. This is typically bullish, but that’s about as much as you can conclude from this observation.

From here, the /ES could spend more time near its highs and build more volume at prices around 2,165. This could eventually lead to the value area shifting higher, particularly if the /ES starts trending higher.

But what if the /ES starts to pull back?

Support should materialize on the first test of the value area high at 2,125.50. Notice there isn’t a support level—in the traditional sense, based on the candlestick chart—at that level.

What happens if the /ES experiences a deeper pullback and falls back below the value area high? This is where the POC down at 2,051.50 could come into play. Markets have memory, and since POC is where the most volume traded since the beginning of the year, this level could act like a magnet. It’s likely that if the /ES were to fall back into the value area, it would keep going down to the POC.

Call Us
800-454-9272

While this article discusses technical analysis, other approaches, including fundamental analysis, may assert very different views.

adChoicesAdChoices

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.

Scroll to Top