Volume Profile is available on Cryptowatch for free, in two versions: Time at Price (like other charting sites) and a true Volume at Price.
After countless requests and a good bit of work, we are ready to launch two versions of the Volume Profile indicator as Analysis Tools on Cryptowatch: Volume Profile – Time at Price and Volume Profile – Volume at Price.
Volume Profile is an intuitive and powerful tool for visualizing the trading volume in a market – instead of viewing volume during distinct time periods, as is often shown at the bottom of a price chart, volume profile shows volume at distinct price levels. This gives traders a sense for where the action is happening in a market – where do support and resistance lie?
This unique indicator is one of the most beloved indicators in crypto and traditional markets – so we are giving both versions away for free to anyone with a Cryptowatch account.
Others charge for this tool – we believe in giving traders a variety of analysis tools so they can view the market in many ways and explore new styles of analysis. As any trader who has lost a good bit of coin knows, analysis is only half the battle when it comes to successful trading. Better traders who are exposed to more tools will trade more, lose less, and stay in the game longer. Good for you, good for us, good for Bitcoin.
The Origins of the Volume Profile Indicator
The Volume Profile indicators originated from the Market ProfileTM chart of Peter Steidlemeyer, which broke the trading day into 30 minute periods designated by alphabetical letters. He explained that these letters, building layers on each other, ended up creating Distributions that manifested as bell curves emanating from the chart.
Eventually, the Market Profile chart ended up being appended to include bars showing actual volume in addition to segregating by time buckets. It was this inclusion of volume bars that led to the development of the Volume At Price addition to traditional time series bar and candle charts – the sideways bars across vertical candles.
Support and resistance live at the extreme points of these distributions, while expectations are that markets will gravitate towards areas where heavy trading has already occurred – previous volume accumulations. This approach of volume attracting future price action was a data point I, and many others, always depended on when trading in futures pits.
Through my decades of experience yelling and screaming orders in the pits, and programming algorithmic trading systems, I’ve seen the value in this approach to viewing markets. The demand from traders on Cryptowatch proves that others have found the same. There is an elegant simplicity to the Volume Profile tool because even before it’s explained, an early glance already provides a conscious and subconscious understanding of what’s happening in the market, and an ability to take actionable information out of it.
What Makes Our Volume Profile Different?
While the Volume Profile overlay exists on many charting platforms, they almost always use a model that leverages the earlier iteration – the Market Profile. On those products the Volume Profile merely takes weighted volume from each of the price candles and distributes it to create a visual that is more representative of Time At Price than it is the more accurate Volume At Price.
For example, a gigantic red candle with most of the selling at the top, and very little at the bottom as the market slipped down, would show an equal distribution of volume in a Time at Price visualization – even adding volume at price levels where trades may not have occurred. A true Volume at Price indicator would show the volume concentrated in the correctly corresponding bar and would show no bars in price ranges where trades never actually occurred.
Our team wanted to give you a choice when viewing Volume Profile, so you can use the more common but less accurate Time at Price visualization or the more detailed and genuine Volume At Price visualization.
Each horizontal bar stretching across the chart in our unique Volume at Price visualization is built by dividing the price range of the chart into equal size ‘buckets’ and counting the real trading volume of the underlying asset within those groupings. We also divide those bars into trades that occurred on the Bid (Sells) and those that occurred on the Offer (Buys), coloring them differently. If there’s a third color, it means that buy/sell trade information was not attached to the transaction.
Did I Already See Volume Profile on Cryptowatch?
You may have noticed tweets showing Volume Profile on Cryptowatch or even seen the tool in your Analysis Tools menu already. We waited to announce it officially through this blog post so we could add two more critical features:
The Value Area shows where 70% of the trading occurred – but you can adjust this percentage when setting up the tool. You’ll notice the center of the Volume Profile is slightly brighter, denoting the Value Area.
Point of Control (POC)
The POC is the longest bar of the histogram – the price bucket with the most total volume. It’s highlighted on your chart, but you can toggle the highlight off if you prefer.
These vantage points within the indicator give further insight into the state of the market and are thought to give hints of where prices may go. As pointed out earlier, markets are thought to move to areas and points of previous volume build-ups. So by showing an area where 70% of the volume occurred, and by further providing the largest volume bucket, the Volume Profile can help you plan your trades when markets see an oscillation within that defined area.
As with the original Market Profile, areas of support and resistance often lie at the tail ends of a distribution on a Volume Profile visualization.
A Real Volume Profile for Crypto
The original Market Profile tool was a completely new way to look at markets. We embraced it on the futures trading floor because we could build it during the day (by hand!), and it conveyed simple points of support, resistance, and consolidation.
When it evolved into a chart overlay on a computer screen, it began to shine through as a way to do two types of analysis on one chart. We wanted to bring that second view to Cryptowatch traders, and make sure we took the time to base it on real trade data instead of rough candle-based estimates.
The better the data, the better the visualization – which leads to better interpretation and, in turn, better trading results.