When a technical analyst evaluates a price chart, he or she will identify horizontal levels of supply (resistance) and demand (support). These levels will help the analyst determine trend, manage risk, and develop a complete view of the asset. One way to confirm if a price level is important and holds price memory, is to apply the volume profile indicator (VPI). Unlike traditional volume, which provides a temporal view of the asset’s relationship with volume, VPI ignores timeframe and reviews volume at specific price levels. In other words, instead of identifying the total volume of stock XYZ on this specific day, week or month, VPI tells us at what price the volume occurred. For this reason, VPI is presented as a horizontal histogram. The thought is that if a large number of shares are exchanging hands at a certain level, it is more likely this level holds true price memory and will behave as support/resistance.
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