Trading With Volume Profile by Sam Whitehill
Daytrading stocks is largely a game of knowing critical support and resistance price levels. Here’s a valuable tool that identifies these levels quickly so you can make sound trading decisions.
Typically, you need to scan through a substantial number of intraday stock charts in order to identify these critical support and resistance levels within any individual stock. This is a time-consuming and tedious process. Moreover, historical chart data is not always available for a time period extending beyond six months, as some charting packages stop showing data more than six months in the past.
Volume profile is a valuable trading tool that can save time and allow you to more easily see significant price levels that occurred in the more distant past. Volume profile is sometimes referred to as “price by volume.” It is somewhat similar to the price activity chart in that it displays cumulative volume by price. It is also similar to Market Profile, but it does not include the time component and is considered a separate tool. Essentially, volume profile is a chart showing the amount of volume (number of shares traded) at each price level over some length of time. Instead of scanning through many intraday charts of a stock to find key support and resistance price levels, you can simply generate a volume profile chart in a fraction of the time. In addition, you can more easily see support and resistance levels from longer periods in the past.