Volume profile shows trading volume at each price level, not just over time. The value area, which contains about 70% of total volume, reveals where institutional traders are positioned and what the market considers fair value.
Volume profile just shows volume at price. Okay, so normal volume is just going to be where you have a chart and then at the bottom you have little volume bars and this just shows you volume by time. But that's not as useful because we want to see where the large market participants are trading. So if your volume profile looks something like this, most likely price moved up. You saw a little bit of consolidation. And what this can tell us with the volume profile is that where the market established a fair value. Now that's what we're going to call the value area. Okay, so value area high is VAH, value area low is VAL. And what this shows you is where 70% of all volume was traded. If we can determine where the most volume was traded and we have a range for that, we can determine where smart money is being positioned and how the market is reacting to these positions. And this can help us know who is in control of the market based on data because we want to make sure we're trading with the smart money and avoiding getting trapped, because that is the number one killer of retail traders, is getting trapped in fake moves.
