Original subtitles

The volume profile is a variant of the market profile, a tool designed by J.

Peter Steitelmeyer in 1985 for the Chicago Board of Trade, CBOT.

Steitelmeyer was a trader and executive member of this major futures and options

market for more than 40 years.

This new method of auction representation was initially intended

members, although it quickly spread abroad.

We can therefore infer that their approach to how the market moves does

to be on a bad basis.

Subsequently, other authors such as Donald L. Jones or James Dalton joined

trend and disseminated more information on market profile trading.

The analysis of the volume profile is totally objective since it does not

require any type of interpretation and therefore provides us with very useful

information for our analysis and scenario approaches.

It is important to note that the volume profile is not an indicator.

Many refer to it as an indicator, but this is not correct since Together with

the price, volume is a direct source of information.

The key is that it does not go through any mathematical formula before being

plotted on the chart, as indicators do.

The volume profile is therefore another way of representing volume data that

helps us to identify very clearly and precisely the number of contracts traded

at different price levels.

Volume profiles are visually displayed on the chart as a horizontal histogram.

whose values are distributed according to the trading volume of each price

level. Depending on the number of contracts that are exchanged at each

level, the shape of the distribution will vary.

The more transactions, the greater the length of the horizontal line, while a

short horizontal line represents fewer trades.

As we know, volume informs us about the activity or participation of the agents.

The more volume, the greater the participation, and therefore the greater

interest in that particular level or zone.

On the other hand, the lower the volume, the lower the participation suggests

less interest in those trading levels.

As a reference, we are going to take a normal distribution or Gaussian bell to

understand the most important statistical concepts.

The data is distributed symmetrically about the central point where the mean,

median, and mode coincide.

It has three standard deviations on each side.

which are equally spaced apart and measure the amount of variability or

around an average.

It is also a measure of volatility.

The first standard deviation comprises 68 .2 % of the data and up to the second

standard deviation 95 .4 % is reached.

On an individual basis, the main information provided by the volume

how the trading has been carried out, i .e., how the volume has been distributed

depending on the price level.

And based on this, it allows us to identify which level or zone has been

interesting for all participants at an aggregate level and which have not.

Information that will later help us to make trading decisions.

On the other hand, the analysis of several profiles together can help us to

determine the overall sentiment or context of the market, which is relevant

the establishment of scenarios.