The cryptocurrency market is volatile and unpredictable. As a trader, having the right tools and indicators can make a huge difference in your ability to analyze the market, identify trading opportunities, and make profitable trades. One of the most useful indicators for crypto trading is the volume profile.
What is Volume Profile and How Does it Work?
The volume profile displays the amount of trading activity happening at different price levels over a given period of time. It is displayed as a horizontal bar chart, with each bar representing a price level. The taller the bar at a price level, the more volume traded at that price.
For example, imagine Bitcoin’s price fluctuates between $10,000 and $11,000 over a 1-hour period. The volume profile would show:
- Tall bars around $10,000 and $11,000, indicating more trading activity when Bitcoin tests these support and resistance levels.
- Shorter bars in the middle around $10,500, indicating less trading volume at these interim price levels.
By analyzing the volume profile, traders can identify:
- Support and resistance levels – Price levels with high amount of volume often act as support or resistance.
- Value areas – The range with the most trading activity, indicating fair value.
- Volume spikes – Increased volume at certain price levels can signify trading interest or supply/demand imbalances.
When combined with price action analysis, the volume profile gives a more complete picture of market activity and sentiment.
Why Use Volume Profile for Crypto Trading?
Here are some key benefits of using volume profile in your crypto trading:
- Identify support and resistance – The volume profile makes it easy to spot significant support and resistance levels that are more likely to hold. Watch for price reacting at levels with high volume bars.
- Confirm breakouts – Volume spikes during a price breakout increase confidence that the move is valid. Lack of volume suggests a false breakout.
- Anticipate reversals – Volume profiles highlighting trading interest at specific levels can signal potential trend reversals. Volume tends to precede price.
- Define value areas – The range with the highest volume bars shows the fair value area. Expect price to return to this value area.
- Gauge momentum – Increasing volume during a price trend indicates strong momentum. Declining volume suggests waning momentum.
- Avoid manipulation – The volume profile can reveal areas with fewer active traders, making it easier to spot and avoid price manipulation.
Step-by-Step Guide to Using Volume Profile
Follow these steps to effectively analyze crypto charts using volume profile:
1. Add Volume Profile to Your Charts
Most trading platforms like TradingView, Kucoin, and Bitcoin ProAir 24 have the volume profile indicator available. On TradingView, for example, you can add it to a chart by going to Indicators and searching for „Volume Profile.“
Make sure to set the length or duration of activity you want the volume profile to cover, such as 60 minutes, 1 day, 1 week etc.
2. Identify Key Volume Levels
Scan the volume profile to identify levels with the highest amount of volume – these will stand out with taller bars. Make a note of the significant volume levels as potential areas of support and resistance.
3. Draw Support and Resistance Zones
Use the rectangle drawing tool to highlight large volume nodes as support or resistance zones on your chart. This makes them visually easy to identify.
4. Wait for Price to Reach Volume Levels
Now just wait for price to reach the volume levels you’ve identified. The volume profile has done the hard work of highlighting key areas in advance.
5. Combine with Other Analysis
Use price action analysis to confirm volume levels. For example, look for reversal candlestick patterns forming at high volume areas to validate them as support or resistance. Combining analysis techniques improves accuracy.
6. Manage Your Trade at Volume Levels
When price reaches major volume levels, look to enter new trades or manage existing trades. You can place limit orders just above or below areas of strong supply/demand.
Let’s walk through an example trade using volume profile…
Volume Profile Trading Example
Let’s look at a real trade example using the volume profile in action:
Step 1) We’ll start by identifying an area of potential support on the DOGE/USDT 1-hour chart. The volume profile shows a high volume zone around $0.075 to $0.078.
Step 2) Price falls and retests this support level. Using the rectangle tool, we highlight the volume zone we want to watch.
Step 3) Check for bullish reversal signs at the support level to confirm it. Here we can see a long lower wick on the candle, indicating buying interest.
Step 4) We enter a long trade with a stop loss just below support. A limit buy order is placed at $0.077 in anticipation of a bounce.
Step 5) Price reverses off support and hits our limit order. Volume increases sharply on the rise, showing strong momentum.
Step 6) We take partial profits near the next volume resistance level around $0.097. The rest of the position is closed once price hits the major volume high around $0.102.
Using the volume profile in this way allows us to objectively identify high probability support/resistance areas where we can confirm trades with price action.
Volume Profile Trading Tips
When using volume profile in your crypto trading, keep these tips in mind:
- Focus on recent volume levels – older levels often become less relevant over time. Filter the age of activity shown.
- Use volume profile on multiple timeframes to identify levels that stand out across different perspectives.
- Volume can precede price – be proactive entering trades before price reaches key volume levels.
- Increase timeframe to filter noise – the longer the time period covered, the more significant the levels.
- Combine with indicators like RSI to gauge momentum and identify divergence at volume levels.
- Be flexible – volume levels are not definitive. Use other confluence factors to confirm trades.
Now you know how to utilize volume profile in your crypto trading! The volume profile cuts through the noise and objectively highlights high probability support and resistance levels determined by actual market activity, not arbitrarily drawn lines.
When combined with other analysis techniques, volume profile gives traders an edge by revealing areas of activity to watch for trades. Try adding it to your own crypto charting toolbox.
Using Volume Profile on TradingView vs ATAS
Volume profile is available on several trading platforms. Two popular options for crypto traders are TradingView and ATAS. Let’s compare the key features of volume profile on TradingView vs ATAS.
TradingView is a leading social network and charting platform for traders. Here are some benefits of using volume profile on TradingView:
- Intuitive browser-based interface making it easy to add volume profile to charts
- Customizable settings for fine tuning volume profile’s appearance and behavior
- Ability to save/load volume profile as part of chart templates
- Analyze volume profile across many different cryptocurrency trading pairs
- Community indicators extend functionality eg. dynamic volume profile
- Share charts & ideas about volume profile with other traders
However, there are some downsides:
- Limited to browser use, no standalone desktop app
- Need to pay at least $15/month for full trading features including volume profile
- Volume profile visuals less advanced than specialty platforms
ATAS is an order flow analytics and trading platform with advanced capabilities for volume profile analysis.
Advantages of ATAS include:
- Specialized trading and volume profile tools only available on ATAS
- Footprint chart combined with volume profile for order flow analysis
- In-depth volume profile configuration options lacking on TradingView
- Platform fully optimized for volume profile and order flow analysis
- Low latency data feeds for accurate volume profiling
- Free access to crypto markets data and volume profile indicators
- Only available as Windows app, no browser or Mac version
- Steep learning curve to master its full capabilities
- Limited social community features
The choice between TradingView and ATAS depends on your specific needs as a trader. Casual crypto traders may prefer TradingView for its ease of use and community. Serious traders doing volume profile analysis across multiple assets may find ATAS indispensable despite the learning curve.
Try out both platforms by using their free trial options to see which is the better fit for your trading requirements.
Volume Profile Trading Strategies
Now that you understand what volume profile is and how to use it, let’s look at some trading strategies you can apply using volume profile analysis:
Fading the Profile Edge
This day trading strategy involves fading the highs and lows made as price pushes into extremes above or below value areas.
- Identify value area on volume profile
- Wait for price to extend into profile edge outside value area
- Enter fade trade in opposite direction back to value area
- Manage risk with stop beyond profile edge
The premise is that price is likely to revert back to value area after reaching extremes.
Volume Imbalance at POC
POC stands for Point of Control – the price level with the highest volume node. Volume imbalances around POC can signal breakouts.
- Determine POC on volume profile
- Watch for increasing volume on one side of POC
- Enter breakout trade in direction of volume imbalance
- Use POC as profit target
You are trading in the direction where volume is shifting, expecting this to bring price along.
Playing Volume Gaps
Look for gaps in volume profile where no trades took place. These can act as profit targets.
- Identify volume gaps on profile
- Enter trades in direction of trend/momentum
- Take partial profits when reaching volume gap zones
- Close trade if gap doesn’t fill after multiple tests
The lack of volume provides less resistance for fast price movement.
The volume profile provides traders with a powerful analytical tool based purely on actual market activity, not subjective chart patterns. By spotlighting high volume areas, it identifies probable support and resistance levels.
When used with other indicators and price action analysis, the volume profile delivers a valuable edge in the volatile crypto markets. It can significantly improve your ability to time entries and exits.
However, like any indicator, success requires practice interpreting volume profiles on historical charts to hone your skills. Experiment with volume profile across different assets and timeframes.
Mastering this single indicator can take your crypto trading to the next level. The information revealed in the volume profile allows traders to focus on the price zones that matter most.
With cryptocurrencies continuing to gain mainstream adoption, there is growing interest amongst traders attracted to the huge profit potential in these volatile digital assets. However, crypto trading also comes with significant risks if entered blindly without a robust trading plan.
The volume profile provides the perfect tool for traders to minimize risk and maximize profit when navigating the turbulent cryptocurrency markets. By highlighting areas of high activity and value, the volume profile transforms raw price data into strategically significant zones.
This guide has shown step-by-step how to utilize volume profile in combination with price action analysis to spot high-probability support and resistance levels. Several practical trading strategies were also covered to give you a head start in deploying volume profile in your own crypto trading.
As with any powerful tool, it takes dedication to truly master volume profile analysis. By studying historical charts and examples, traders can refine their interpretation skills to spot subtle signals in the volumes. The payoff is well worth the effort — trading with an informational edge over the market.
The future looks bright for crypto traders who embrace volume profile. As adoption continues rising, interest from active traders will only increase liquidity and open up more volume profile opportunities. Take your crypto trading to the next level by adding this valuable weapon to your charting toolbox today.