Volume Profile Part 2: Uncovering Hidden Market Levels
Welcome to Part 2 of our three-part series on Volume Profile Analysis. While traditional support and resistance analysis focuses on the visible extremes of price action, Volume Profile Analysis offers a unique advantage: the ability to uncover hidden pockets of volume that may act as strong, yet concealed, levels of support or resistance. These levels are often invisible to the naked eye but can be revealed through Volume Profile indicators. Let’s dive into two techniques that will help you identify these hidden market levels.
Classic Support and Resistance vs. Hidden Levels
Classic support and resistance analysis typically emphasises price extremes—swing highs and swing lows where the market has previously reversed or stalled. While these levels are undoubtedly important, they don’t tell the whole story. Volume Profile Analysis, on the other hand, reveals where significant trading activity has occurred within the body of price action, not just at the extremes. This can uncover hidden levels of support and resistance that aren’t immediately obvious but are crucial to understanding market dynamics.
Technique 1: Mapping Hidden Levels with the SVP HD Indicator
The first technique uses the Session Volume Profile High Definition (SVP HD) indicator on an hourly candle chart to identify hidden levels of support and resistance. Here’s how it works:
Step 1: Apply the SVP HD Indicator – On your hourly candle chart, apply the SVP HD indicator. This tool will plot the volume distribution within each trading session, providing a detailed view of where trading activity has concentrated.
Brent Crude with SVP HD Indicator
Past performance is not a reliable indicator of future results
Step 2: Identify Points of Control (POC) – Each session has a Point of Control (POC), the price level with the highest trading volume for that period. As you map these POCs across multiple sessions, you’ll start to notice clusters where POCs concentrate in the same area.
Brent Crude with Mapped POC’s
Past performance is not a reliable indicator of future results
Step 3: Spot High Volume Zones – Areas with a high concentration of POCs represent high-volume zones. These zones often act as hidden levels of support or resistance. Unlike classic support and resistance, which are based on visible price extremes, these hidden levels reflect where the market has found a consensus over several sessions, making them potentially stronger.
Brent Crude High Volume Zones
Past performance is not a reliable indicator of future results
Technique 2: Establishing Confluent Hidden Levels with the VRVP Indicator
The second technique leverages the Visible Range Volume Profile (VRVP) indicator on a daily candle chart across a one-year period to establish confluent hidden levels. Here’s the process:
Step 1: Apply the VRVP Indicator – On your daily candle chart, set the timeframe to cover the last twelve months and apply the VRVP indicator. This will display the volume distribution across the entire visible range, highlighting high and low volume nodes.
Gold (XAU/USD) with VRVP Indicator
Past performance is not a reliable indicator of future results
Step 2: Identify High Volume Nodes (HVNs) – HVNs are price levels where significant trading activity has occurred. These nodes often correspond with hidden support or resistance levels.
Gold (XAU/USD) with High Volume Nodes Extended
Past performance is not a reliable indicator of future results
Step 3: Use Key Swings and VWAP for Confluence – To strengthen your analysis, anchor the Volume Weighted Average Price (VWAP) to key inflection points in the chart. Combine this with high-volume nodes identified by the VRVP indicator and key price swings. When multiple indicators align, these confluent levels enable you to focus on the market’s key structure.
Gold (XAU/USD) with VRVP Indicator
Past performance is not a reliable indicator of future results
Conclusion
By uncovering hidden market levels through Volume Profile Analysis, you can gain a deeper understanding of market structure that goes beyond traditional support and resistance. These techniques provide a clearer picture of where the market’s true balance lies, enabling you to make more informed trading decisions.
In the final part of this series, Part 3: Pockets of Hot Air, we’ll explore how to use Volume Profile Analysis to trade breakouts into areas of low volume.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.51% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Classic Support and Resistance vs. Hidden Levels
Classic support and resistance analysis typically emphasises price extremes—swing highs and swing lows where the market has previously reversed or stalled. While these levels are undoubtedly important, they don’t tell the whole story. Volume Profile Analysis, on the other hand, reveals where significant trading activity has occurred within the body of price action, not just at the extremes. This can uncover hidden levels of support and resistance that aren’t immediately obvious but are crucial to understanding market dynamics.
Technique 1: Mapping Hidden Levels with the SVP HD Indicator
The first technique uses the Session Volume Profile High Definition (SVP HD) indicator on an hourly candle chart to identify hidden levels of support and resistance. Here’s how it works:
Step 1: Apply the SVP HD Indicator – On your hourly candle chart, apply the SVP HD indicator. This tool will plot the volume distribution within each trading session, providing a detailed view of where trading activity has concentrated.
Brent Crude with SVP HD Indicator
Past performance is not a reliable indicator of future results
Step 2: Identify Points of Control (POC) – Each session has a Point of Control (POC), the price level with the highest trading volume for that period. As you map these POCs across multiple sessions, you’ll start to notice clusters where POCs concentrate in the same area.
Brent Crude with Mapped POC’s
Past performance is not a reliable indicator of future results
Step 3: Spot High Volume Zones – Areas with a high concentration of POCs represent high-volume zones. These zones often act as hidden levels of support or resistance. Unlike classic support and resistance, which are based on visible price extremes, these hidden levels reflect where the market has found a consensus over several sessions, making them potentially stronger.
Brent Crude High Volume Zones
Past performance is not a reliable indicator of future results
Technique 2: Establishing Confluent Hidden Levels with the VRVP Indicator
The second technique leverages the Visible Range Volume Profile (VRVP) indicator on a daily candle chart across a one-year period to establish confluent hidden levels. Here’s the process:
Step 1: Apply the VRVP Indicator – On your daily candle chart, set the timeframe to cover the last twelve months and apply the VRVP indicator. This will display the volume distribution across the entire visible range, highlighting high and low volume nodes.
Gold (XAU/USD) with VRVP Indicator
Past performance is not a reliable indicator of future results
Step 2: Identify High Volume Nodes (HVNs) – HVNs are price levels where significant trading activity has occurred. These nodes often correspond with hidden support or resistance levels.
Gold (XAU/USD) with High Volume Nodes Extended
Past performance is not a reliable indicator of future results
Step 3: Use Key Swings and VWAP for Confluence – To strengthen your analysis, anchor the Volume Weighted Average Price (VWAP) to key inflection points in the chart. Combine this with high-volume nodes identified by the VRVP indicator and key price swings. When multiple indicators align, these confluent levels enable you to focus on the market’s key structure.
Gold (XAU/USD) with VRVP Indicator
Past performance is not a reliable indicator of future results
Conclusion
By uncovering hidden market levels through Volume Profile Analysis, you can gain a deeper understanding of market structure that goes beyond traditional support and resistance. These techniques provide a clearer picture of where the market’s true balance lies, enabling you to make more informed trading decisions.
In the final part of this series, Part 3: Pockets of Hot Air, we’ll explore how to use Volume Profile Analysis to trade breakouts into areas of low volume.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.51% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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