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06/18/2024 |

Reimagining the Volume By Price Indicator

The Volume-by-Price Indicator is an invaluable tool for traders and investors looking to analyze the market’s underlying structure and identify key support and resistance levels. By combining price and volume data, the VbP provides insights into a security’s supply and demand dynamics, offering a more comprehensive view of price action.

With this in mind, we are thrilled to unveil a handful of new enhancements to our Volume-by-Price (VbP) indicator and annotation tool. This update brings several significant improvements that will impact your trading experience by providing deeper insights into the volume and price data you’ve come to rely on.

This is the header image for the volume by price blog.

Key Changes to the VbP Indicator

There are several key changes that we’ve made to both the VbP indicator and the VbP drawing tool. These changes affect the way that volume by price is computed as well as introduce new visual features to allow for deeper comprehension of the data.

  • Buy and Sell Volume Visualization
  • △Volume
  • Pyramid Mode
  • Value Area High and Low
  • Enhanced Time Frame Computation

Buy and Sell Volume Visualization

Volume bars are now colored red or green depending on the color of the candle on which the volume occurred. The volume of a red candle will be added to the red portion of the corresponding volume shelf at that price point while the volume of a green candle will be added to the green portion of the corresponding volume shelf. This feature functions similarly to On Balance Volume (OBV), providing a clearer picture of buying and selling pressures.

This is an image showing basic buying and selling volume distribution of the new volume by price indicator.

△Volume

By default, buy and sell volume is organized from left to right, with sell volume on the left and buy volume on the right. In △Volume mode, the buy and sell volume is further organized into four notable visual components.

  • Dark Red and Dark Green: Represent equal amounts of buy and sell volume per each volume shelf level.
  • Light Red: If a volume shelf contains a light red section, then the sell volume outweighed the buy volume at that level by that amount.
  • Light Green: In the case of a light green section visible on a volume shelf, the buy volume outweighs the sell volume at that level by that amount.

△Volume mode can be toggled on or off using the button highlighted within the indicator menu below.

This is an image of the edit box for the Volume By Price indicator.

NVDA’s Buying Volume Was The Tell

High buy volume at specific price levels indicates strong demand within that area. A picture-perfect representation of this idea can be seen on the NVDA chart below. One could argue that the 2024 move was foreshadowed by the sheer amount of buying volume that came in between November 2022 and May 2023. Despite the huge move that’s occurred since that time, buying volume has not been nearly as concentrated since then.

This is an image of the NVDA weekly chart.

Sellers Close The Lid On INTC

On the other hand, high sell volume, like pictured on the INTC chart below, indicates areas of significant supply, which can act as resistance in the future. While the price was able to find support in the $50 range in early 2020, when the price retested that range in January of 2024, the overwhelming sell volume that had accrued there was too much for the stock to push through, causing a rejection and a retest of the 2023 lows.

This is an image of the INTC daily chart.

Pyramid Mode

Pyramid Mode is a unique and experimental method for looking at Volume By Price.  This mode is only available on manually drawn VbP and separates the buying volume (left) and selling volume (right) to provide you with a unique view of the volume profile.

This is an image of pyramid mode setting within the manual volume by price drawing tool.

Value Area High and Low

The Value Area High (VAH) and Value Area Low (VAL) in a volume profile are critical levels representing the upper and lower boundaries of the price zone in which 70% of the trading activity occurred during a given period. These levels help traders identify potential support and resistance levels, as prices often react at these points. A price move above the VAH suggests bullish strength, while a drop below the VAL indicates bearish sentiment.

AAPL Breaks Out

This is an image of Value Area High and Low on the Apple weekly chart.

The idea of the VAH and VAL is visualized nicely on the AAPL weekly chart. Since July 2023, these levels have acted as perfect support and resistance and traders who have utilized them have been handsomely rewarded. The recent breakout above the Value Area High, however, suggests renewed bullish strength.

Traders looking to capitalize on a retest of the VAH after a recent breakout or the retest of the VAL after a recent breakdown can import the below scanners into their accounts and start finding those setups today.

"Value Area High Breakout/Retest" scanner by TrendSpider
charts.trendspider.com
“Value Area High Breakout/Retest” scanner by TrendSpider
"Value Area Low Breakdown/Retest" scanner by TrendSpider
charts.trendspider.com
“Value Area Low Breakdown/Retest” scanner by TrendSpider

Enhanced Time Frame Computation

Volume-by-Price calculations are now performed using lower time frames instead of the chart’s time frame. This new approach selects a time frame that generates approximately 2,000 candles for the VbP’s date range. The shorter the VbP date range, the lower the time frame used. For example: a VbP covering 3 Daily candles will be computed on 1-minute candles while a VbP spanning 30 Daily candles will use 10-minute candles.

With this change, a more granular view is possible, which allows a trader to more clearly visualize and understand the underlying distribution of the volume across buyers and sellers. However, there are some limitations to this change.

  1. Scanners, Alerts, and Smart Checklists: VbP will still be computed based on the user-defined time frame. While this may cause discrepancies between visual observations and scans, it has been proven to be a rare issue in practice.
  2. Auto-Anchored VbP Indicator: Will continue to use the old computation method based on the chart’s time frame. The difference between the volume distributions of an auto-anchored VbP and a manually anchored VbP are visualized in the chart below.
This is a visualization of the difference between enhanced time frame computation and regular computation of volume

We believe these updates will significantly enhance your ability to analyze volume dynamics and make more informed trading decisions. If you have any questions, feel free to reach out to us via the ‘Contact Us’ button in the bottom right corner of your platform view. We look forward to your feedback as you explore these new features.