Volume is one of these most critical indicators for fixed volume instruments. Volume tells the truth and represents the truth behind price action.
VPA and VAP
Volume analysis incorporates a myriad of different theories, indicators, and measurements. It is easily one of the most varied and studied forms of technical analysis. For this article, I will be focusing on two primary methods of volume analysis: Volume Price Analysis and Volume At Price Analysis. Even if you don’t know what Volume Price Analysis is, you have seen it. Volume Price Analysis is a study of volume and time. This measurement is commonly represented as vertical bars (known as Volume Bars) and is linked to the form of price measurements such as American Bar Charts or Japanese Candlesticks. Volume bars are typically colored-coded to reflect the ‘control’ of the time represented. If there were more buyers than sellers, the Volume Bar is often shaded green. If there were more sellers than buyers, the Volume Bar is often shaded red. The size of the Volume Bars represents the amount of aggregate buying and selling that occurred. Volume At Price Analysis is both similar and very different at the same time.
Volume At Price Analysis is more unknown to new traders and analysts than Volume Bars. Volume At Price Analysis has a variety of names and styles associated with it. Some of those names and styles are VAP, Market Profile, Volume Profile, and Time Price Opportunity. Whereas Volume Price Analysis displays its measurement through the use of vertical bars, Volume At Price Analysis displays its measurements horizontally. Volume Price Analysis measure how much of something was bought and sold during a particular time, Volume At Price Analysis measures how much of something was traded at a specific price. As a trader, and in my personal opinion, Volume At Price Analysis is an exceedingly more critical measure of volume and relevance than merely how much of something was traded at a particular time.
Volume At Price Analysis has essential components involved with its style. Long horizontal levels that seem to stick out represent heavily traded areas. These are areas of equilibrium – a place where buyers and sellers have seemingly agreed that the instrument is at a fair value. The longest of the horizontal bars is known as the VPOC (Volume Point Of Control). The VPOC represents the price level where the most amount of something was traded at a particular price or price range. Areas of sizeable horizontal volume are known as High Volume Nodes, and areas where little volume has traded, displayed with small horizontal bars, are known as Low Volume Nodes. It is the High and Low Volume Nodes that create excellent trading opportunities for traders. This brings us to Bitcoin.
Volume At Price
The chart above is Bitcoin’s Daily Chart with the Volume Profile (Part of Volume At Price Analysis) on the right side. You will notice that there a few High Volume Nodes on the chart. Bitcoin is not currently trading inside one of those zones, but it is just below an area where there is a sizeable gap in volume known as a Low Volume Node. A typical trade strategy to employ when price is near a Low Volume Node is to place a long or short when price moves into that Low Volume Node. Low Volume Nodes represent weakness – meaning price can move through them swiftly. I had it described to me once as a sort of vacuum; prices get sucked up or down from one High Volume Node to the next. If Bitcoin were to move above 8805, then we should expect to see a swift move through the Low Volume Node between 8800 and 9200. We should expect to see price be halted if it moves to the next High Volume Node at 10133.18.