Volume profile for stocks: volume at price explained

Volume at price: what a profile shows

An ordinary volume pane shows how many shares traded in each session, along the time axis. A volume profile rearranges the same trading along the price axis: for a chosen stretch of history it adds up the shares that changed hands at each price level and draws the totals as a sideways histogram. Prices where many shares traded form high-volume nodes; prices that trading passed through quickly form low-volume nodes.

The two views answer different questions about the same trades. The volume pane asks when trading was heavy; the profile asks at what price it was heavy.

What a real volume profile needs

A volume profile is only as good as its inputs, and each input is a choice that changes the result. Read any profile together with the range and the bin size it was built from.

• Volume at each price level, ideally from every trade’s price and size, or from intraday bars narrow enough that each covers a small band of prices.
• A price bin size: one tick, or a fixed band such as $0.10 or $0.50 for a stock trading near $50.
• A range: the first and the last session, or trade, included in the count.
• A session filter: whether extended-hours trades count, applied the same way to every session.
• A value-area rule: the share of volume it must hold, conventionally 70%, and how it grows from the point of control.

TradeClever does not draw volume profiles. Its Stock Charts show daily candles with a volume pane, which is enough to see which sessions carried heavy volume and the price range of each one, but not where inside that range the shares changed hands.

Volume profile point of control

The point of control is the price bin with the most volume in the range. It marks the price at which the most shares changed hands, so it is often treated as a reference level, a price the market accepted in the largest size. When two bins tie, platforms break the tie differently, commonly with the bin nearer the middle of the range, so check the rule before comparing profiles.

The range totals 2,360 thousand shares. The $46.50 bin holds the most, 420 thousand shares or 17.80% of the total, so it is the point of control.

Value area, value area high and value area low

The value area is the band of prices around the point of control that holds a set share of the range’s volume, conventionally 70%. The share is often explained as roughly one standard deviation of a bell-shaped distribution, about 68%, but it is a convention rather than a law. The top of the band is the value area high and the bottom is the value area low.

1. Start with the point of control.
2. Compare the next bin above the band with the next bin below it, and add the one with more volume.
3. If they tie, add both; if one side has reached the edge of the range, keep adding from the other side.
4. Stop as soon as the band holds at least 70% of the total volume.

The band passes 70% at step 6, so the value area runs from $45.50, the bottom of its lowest bin, to $48.50, the top of its highest bin, and holds 76.27% of the volume. The overshoot past 70% comes from adding whole bins. Some platforms compare two bins on each side at a time, which can move an edge by a bin. The idea comes from the Market Profile method, which measured time spent at each price; volume profiles apply it to shares traded.

Fixed range, session and visible range profiles

A fixed range volume profile counts volume between two points you choose, such as the first and last session of a base or the sessions since an earnings gap. A session profile counts one session at a time, and a visible range profile counts whatever is on screen, so it changes whenever the chart is scrolled or zoomed. A fixed range is the easiest to reproduce, because its start and end can be written down.

• Start at a structural point: a swing low, the first session of a base or the session after a gap.
• End at the latest session, or at the session before the move you want to study.
• Keep the bin size the same when you compare two ranges.
• Write the start, the end and the bin size next to the levels you record.

Counter-example: a profile that starts in the middle of one range and ends in the middle of the next mixes two unrelated periods of trading. Its point of control can sit at a price where the stock spent little time in either period.

What daily bars can and cannot show

A daily bar records four prices and one volume figure. To estimate volume at price from daily bars, a tool has to assume where inside each bar’s range the shares traded, for example evenly from low to high. That assumption is reasonable for quiet sessions with narrow ranges and poor for wide-range sessions, where trading often clusters at one end.

The estimate spreads each session’s volume evenly over its $0.50 bins, so session 3 adds 187.5 thousand shares to each of its eight bins. Its point of control is the $46.50 bin, where all three sessions overlap. In the hypothetical trade-level count, most of session 3’s shares changed hands between $48.50 and $50.00, and the point of control is the $49.00 bin, $2.50 higher.

• A daily approximation can show which price areas were covered by many heavy sessions, and where those sessions overlapped.
• It cannot show where inside a session the shares traded, so its point of control and value area are estimates, and narrow low-volume areas between two prices disappear in it.

Read a profile alongside structure

A profile adds a price dimension to the volume you already see. High-volume nodes often sit where a range or a base formed, and low-volume nodes where price moved quickly, as in a breakout or a gap. Many traders watch whether price holds inside the value area or moves away from it, which mirrors the reading of support, resistance and trendlines.

1. Choose the range from structure: a base, a trend leg or the sessions since a gap.
2. Record the bin size and whether extended-hours trades are included.
3. Note the point of control, the value area high and the value area low.
4. Compare them with the swing highs, swing lows and gaps on the daily chart.
5. Check whether one heavy session dominates the profile; if it does, read that session separately.
6. Write the levels and the range they came from in your notes, then review them in Stock Charts as new sessions arrive.

Volume profile is related to the volume-weighted average price: both weight prices by volume, but VWAP reduces the range to a single price while a profile keeps the whole distribution. An anchored VWAP and a fixed range profile both start from a point you choose.