Candlesticks + Volume Profile: Where Volume Traded

An ordinary volume bar tells you how many shares traded on a day. A volume profile adds up the same shares by price instead, and draws the totals as sideways bars beside the chart. It answers one question:

At which prices did most of the trading happen?

A long bar means many shares changed hands at that price. A short bar means few did. Prices where a lot of trading happened are ones many traders bought or sold at, so price often slows down when it comes back to them. Prices where little traded are ones the market passed through quickly.

The idea comes from Market Profile, developed by J. Peter Steidlmayer, a trader at the Chicago Board of Trade, and released by the exchange in 1985. Market Profile counts time: how many half-hour periods price spent at each level. A volume profile counts shares traded instead. The two usually agree on the busiest prices, but not always: a burst of heavy trading in a few minutes adds a lot of volume and very little time.

Every volume profile is built the same way:

A profile is read through a few named parts:

The value area is built outward from the POC. Starting at the busiest row, the calculation compares the next row above with the next row below and adds the one with more volume. It repeats until the band holds 70% of the total. Because it follows the volume, the POC is often not in the middle of the value area. Platforms differ in the detail: the original Market Profile method compares the next two rows above with the next two below, so the same chart can show slightly different value area edges on different platforms.

The 70% figure is a convention carried over from Market Profile, not a property of markets. It is the default on most platforms, some use 68%, and you can change it. What matters is reading the value area as the zone where the market did most of its business.

Look at the profile’s outline and you will see bulges and dents. Traders give them names:

High-volume node (HVN): a bulge, a cluster of long rows. Price spent time there and many shares changed hands, often during a sideways stretch. The POC is the largest HVN, but a profile can have several, like the earlier base in the figure.

Low-volume node (LVN): a dent, a run of short rows between bulges. Price passed through quickly, so few shares traded there. A fast rally or a sharp drop usually leaves one behind.

How each is commonly read:

Because a profile only counts the bars you give it, the first choice is which bars. Platforms offer three common versions:

The visible-range profile (VPVR) is the quickest to use, and that is also its weakness: zoom out from three months to a year and the POC can move to a completely different price, because the profile is now counting different bars. Neither is wrong. They answer the question for different stretches of time.

The second setting is the number of rows (some platforms call it row size). Fewer rows merge nearby prices into a few thick bars and can hide a thin zone. More rows show finer detail but get noisy, and when two busy rows are close in size, the POC can jump between them as you change the setting. There is no single correct number: pick one that shows the bulges and dents clearly without turning every row into noise.

A candlestick pattern tells you when buyers stepped in. A volume profile tells you whether the price they stepped in at is one the market has traded heavily before. For a bullish reversal, three locations are worth knowing:

For example, a Hammer like the one in the figure dips below the value area low, then closes back inside it. Sellers pushed into thin prices and could not stay there. The confirmation is a later close above the Hammer’s high, often the next session, as in the figure. The same reading works for a Bullish Engulfing, a Piercing Pattern or a Morning Star at the same edge.

The profile also shows what happens if the setup fails. Under a value area low with a low-volume node beneath it, there is little traded volume to slow a decline until the next high-volume node. Put the stop below the candle’s low, as usual, and expect that a break of it may move quickly.

Volume profile and a trading range often describe the same sideways stretch in two ways: the box marks where price turned, the value area marks where it traded most. When a range floor and a value area low sit at the same price, the two readings agree.

It can’t tell you the future. A profile is a record of where trading happened. It shows where price may slow down, not whether it will turn there.

It changes with the range. Two traders looking at the same stock over different stretches see different POCs and value areas. A level is only as meaningful as the range it came from.

It doesn’t say who was buying or selling. Every trade has a buyer and a seller. A long row means many shares changed hands, not that buyers won. For that, read the candles and the volume on the day.

It doesn’t show when the trading happened. Heavy trading at a price two years ago and last month look the same in one profile. Many traders give older levels less weight, since some of the positions taken there may already be closed.

A volume profile doesn’t make a candlestick pattern work. It tells you whether the price the candle formed at is one the market has traded heavily, or one it rushed through.

So when you read a profile behind a pattern, ask one question: “Did a lot of trading happen at this price?” A bullish reversal on a high-volume node says yes, with that trading beneath it. One at the value area low says it formed at the edge of the busiest prices, with them above it. The same candle in the middle of a thin zone says no.

This is one of seventeen context guides in this series: Candlesticks + Moving Averages for trend structure, Candlesticks + RSI for how stretched a move is, Candlesticks + MACD for momentum, Candlesticks + ADX for trend strength, Candlesticks + Volume for conviction, Candlesticks + On-Balance Volume for volume flow, Candlesticks + Accumulation/Distribution for where the close fell, Candlesticks + Volume Spread Analysis for reading each bar’s effort and result, Candlesticks + Anchored VWAP for the average price paid since a turn, Candlesticks + Fibonacci for retracement levels, Candlesticks + ATR for volatility, Candlesticks + Bollinger Bands for volatility bands around an average, Candlesticks + Multi-Timeframe Analysis for the weekly trend, Candlesticks + 52-Week High/Low for where price sits in its yearly range, Candlesticks + Trend Channels for where in the trend price sits, and Candlesticks + Trading Ranges for sideways markets. New to candles? Start with the candlestick basics guide.