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What is the Difference between Market Profile and Volume Profile?

What is the Difference between Market Profile and Volume Profile?

Traders use different kinds of technical indicators while choosing a stock or finding out the current trend in the market and try to find out the entry and exit timings for stock.

It helps in predicting investors what needs to be done next. Market profile analysis is usually for short term traders and they give information about price, time and volume analysis. As the trading proceeds through the day it provides the investor a clear cut sight about the current condition of the market. Market profile is all pervasive; it does not have any restrictions of certain conditions in the market like in technical indicators. It tends to work in all kinds of market conditions.

While trading we find the market is influenced by different kinds of traders and the different kinds of trade undertaken by them. There are small and marginal traders, big traders, intraday traders, swing traders and many other kinds of traders. It is the combined effect of their trade which tends to bring in the change and fluctuation of prices in the market.

Big buyers and traders buy and sell at different prices which is according to their convenience and provides them a premium on their investment. The other kind of investors by trading on a day to day basis provides liquidity in the stock market. This includes the day traders and the swing traders as well. The price of a stock is determined and pushed up or down by the combined trading interaction of the big traders and the small time traders as well.

Market Profile an indicator for traders

Most of the technical indicators help the traders in making buying and selling decisions with the help of calculation of the prices at different levels and for different time frames. It helps in determining the open, close, high and low positions in the trade. This gives loads of help to the traders in making decisions for buying and selling of stocks. Market profile is also an indicator which helps a trader to study the market in a three dimensional view. While candlesticks provide a 2D view this indicator helps a trader to have a 3D view. While studying the charts of Market profile it indicates the action and trading activities of big traders. This helps the short term traders to decide their position for a time frame they have in mind.

For a day trader time, opportunity and information regarding the price are all relevant and important. Time and opportunity are inversely proportional in a day trading activity. Good opportunities are available only for a short period of time. So the trader needs to be fast and encash on the opportunity. A trader will not always get the chance to buy a stock below value or sell a stock above value. He will need to take advantage of the situation and act fast as the big players act fast and they will not allow an opportunity to pass by without acting on it.

In most of the technical indicators charts are plotted against volume and price keeping the time factor as constant. However in a market profile the chart is three dimensional in nature and plotted against price, volume and time. These charts are very helpful for day traders and helps them to identify different trading opportunities. As discussed earlier the market profile indicates the movement of the big sharks and an intraday trader is supposed to follow the movement of these big investors. Day traders and short term traders get a benefit with the use of market profile.

Market profile provides IB range which gives the trader range of price variation, market depth and liquidity which helps the retail traders in their trading. Based on IB range and price variation there are six kinds of days which have been recognised for a trader. The trading needs to be based on the different kinds of day structures.

Volume profile Analysis

Volume profile is a very important tool for day traders. Volume profile shows to the trader what the volume of trade at a certain price was in a particular time frame. The volume profile is a popular tool and easily accessible to a normal trader. Short term traders have found this tool immensely useful. A trader can find out important price levels with the help of graphs of volume profile. In a volume profile chart in which the horizontal lines are the longest it is called the Volume Point of Control. Usually the maximum amount of trade takes place at VPOC. The traders find the other high volume points as well and wait for the price to breakaway above or below the VPOC. Traders who use technical analysis as a tool to study the trend of the market find big candlesticks getting formed just below or above the point of breakout or the high volume nodes. Volume profile limits its effectiveness to providing the trader the volume of stock traded at a price level.

Difference between Market and Volume profile

Market profile helps the short term trader to understand the current prevailing trends in the market. It takes into account the latest data which is available and provides the latest price, time and volume analysis of the market.

Volume analysis on the other hand forms advanced charts for the market on the whole or for a particular stock in which the trader wants to trade in. It provides the volume traded at a particular price. Volume profile is based on historical data rather than current data. An investor makes his inferences and strategy based on historical analysis.

There are different kinds of tools used by traders to understand the current market conditions and estimate predictions regarding movement of stocks. To understand clearly the condition prevailing in the market on the whole, for different sectors and for a particular stock the investor should be amply educated on the different technical tools and develop an understanding of reading charts. A step wise education needs to be imparted to people to confidently step up their investment in stocks. Share market profile is a good institute educating people with different tools for making good investment decisions. You can enrol yourself with them and get the required knowledge. To know more about their courses log on to the website www.sharemarketprofile.com

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