Filtered Volume Profile

The Filtered Volume Profile indicator is a technical analysis tool that utilizes a fixed-range volume profile to visualize market activity through a histogram of volume at specific price levels. By applying advanced filtering techniques, it helps traders identify key areas of support and resistance while minimizing market noise.

Usage

The script analyzes cumulative trading volumes across price bins over a user-defined lookback period. This period represents the number of bars used to calculate critical levels such as the Point of Control (POC).

• Lookback: Defines the historical range (number of bars) used for the volume calculations.
• Smoothing: Adjusts the degree of output smoothing. Higher values provide a cleaner visual but may reduce responsiveness to rapid volatility changes.
• Peak Sensitivity: Controls the peak detection algorithm. Lower values increase sensitivity to local volume changes, potentially resulting in more identified levels.
• Peak Threshold: Specifies how many bins the peak detection mechanism considers. Increasing this value identifies fewer, but more significant, volume peaks.
• Histogram interpretation: The histogram bars are color-coded based on the balance of bullish and bearish volume. Intense colors signify higher-than-usual volume at that specific price, indicating strong buying or selling pressure.

Details

The indicator incorporates a Sinc Filter, a high-quality signal processing technique that reduces artifacts and noise without the "ringing" effects common in simpler filters. This makes the volume profile more representative of actual market behavior rather than statistical anomalies.

The script also features a Mean Score calculation. This uses z-scores and t-distribution probabilities to characterize the statistical likelihood of price trends. By calculating the Root Mean Squared Error (RMSE) over a set timeframe, the tool provides a probabilistic inference regarding whether future prices are likely to stay above or below identified volume levels.

Settings

• Length: The lookback period for the volume profile calculation.
• Smoothing: The bandwidth for the Sinc Filter applied to the volume data.
• Peak Sensitivity: Determines the local window size for identifying price peaks.
• Peak Threshold: The percentile rank volume must exceed to be considered a significant peak.
• Mean Score Length: The window used for calculating the statistical mean and RMSE.
• Control Lines: Choose to display the POC, all significant peaks, or none.
• Histogram Colors: Customize the colors for bullish and bearish volume distributions.
• Transparency: Adjust the opacity of the histogram on the chart.

FAQ

How do I interpret the histogram colors? The colors represent the ratio of bullish to bearish volume within each price bin. Darker or more intense shades indicate higher relative volume concentration at those levels.

What is the Point of Control (POC)? The POC is the price level with the highest traded volume during the specified lookback period, often acting as a significant psychological level for traders.

How can I access this tool? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.