the Volume Profile is a charting technique (indicator) that shows the trading activity of a specific financial asset over time. This indicator uses horizontal bars to reflect trading activity at different price points. The bars are stacked vertically, with the highest indicating the areas with the most trade activity.
The Volume Profile is a relatively new charting technique created in the late 1980s by a trader called Peter Steidlmayer. He was a talented futures trader at the Chicago Board of Trade (CBOT) seeking a more efficient approach to examining market data.
Steidlmayer noticed that typical technical indicators, including oscillators, moving averages, and trendlines, did not accurately portray market trends and reversals. He believed the amount of trading activity at every price point was a more reliable measurement of market sentiment, so he began developing a statistical model to analyze this data.
The first thing that drew Steidlmayer’s attention was the fact that price swings were not random but instead preferred to cluster around particular price levels. He also noted that the trading activity was higher at certain levels than at previous levels.
Based on these discoveries, Steidlmayer developed a new method of assessing markets that considered both price and volume. He called this approach Market Profile, which later evolved into the Volume Profile indicator.
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