GlossaryLocal Volume Profile
Local Volume Profile
The Local Volume Profile distributes the volume of the last candles across price levels and uses that to draw three lines over the price: the Point of Control, where the most volume was, and the two boundaries of the Value Area, which holds 70% of the volume. These levels are well-known reference points for support and resistance.
How to read it
- Inside the Value Area, the market agrees on the price. The price often swings between VAH and VAL, and the POC acts like a magnet.
- Outside the Value Area, little has traded. Moves there often run through faster until they hit volume again.
- Breakout or false breakout: If several candles close outside the Value Area, the market is accepting new prices. If the price returns quickly, it often runs to the opposite side.
- The color of the POC line shows at a glance which side of the most-traded price the market is currently on.
Limitations
- It is calculated from candle volume, not from individual trades. Where within a candle trading took place is unknown, and the candle counts equally across its whole range. For a profile from real trades, use the Volume Profile (VPVR) under Order flow.
- The levels are only as precise as a price level is wide. Over 1100 daily candles with a large range, a level can span a few hundred dollars.
- The same window depth covers very different time spans depending on the interval: 1100 hourly candles are a little over six weeks, 1100 daily candles three years.
- The study needs at least 50 loaded candles and volume. Without volume it stays empty.
- Intended for 1h to 1W.