poc by Jonathan

The Improved Volume Profile POC/VA indicator provides a comprehensive volume profile analysis tool that identifies key market levels including the Point of Control (POC), Value Area High (VAH), and Value Area Low (VAL) to detect potential breakouts and breakdowns.

Usage

The Usage section describes how the script can be used to identify areas of high liquidity and potential trend reversals. This tool is designed to help traders visualize where the majority of trading activity has occurred over a specific lookback period.

• Identifying Value Areas: The script calculates the Value Area, which represents the price range where 70% of the volume took place. Trading above the VAH is often interpreted as bullish sentiment, while trading below the VAL is interpreted as bearish.
• Breakout Detection: The tool automatically identifies breakouts. A "VAH Breakout" signal occurs when price moves from inside the Value Area to close above the VAH with a significant price change. Conversely, a "VAL Breakdown" signal occurs when price drops below the VAL.
• Volume Distribution: Users can enable the histogram to see the specific distribution of volume across price levels, helping to identify "high volume nodes" (support/resistance) and "low volume nodes" (potential gaps).

Details

The script utilizes a dynamic binning system to calculate the volume profile. It segments price action into specific "bins" and distributes volume based on how much of a candle's range overlaps with each bin.

• Dynamic Binning: When "Auto Bin Count" is enabled, the script uses the Average True Range (ATR) to determine the optimal number of bins, ensuring the profile remains relevant across different volatility environments.
• Weighting Logic: Volume is not just assigned to a single price point; it is distributed across the candle's range using a weighting function that gives more significance to the typical price.
• Value Area Calculation: Starting from the POC (the price level with the highest volume), the script expands upward and downward, adding the adjacent bin with the higher volume until 70% of the total volume is accounted for.

Settings

• Volume Profile Length: The number of historical bars used to calculate the profile.
• Use Quote Volume: When enabled, uses USDT/Quote volume for calculations; otherwise, it uses base asset volume.
• Auto Bin Count: Automatically adjusts the resolution of the volume profile based on market volatility.
• Manual Bin Count: Sets a fixed number of price rows for the profile when Auto Bin Count is disabled.
• Show POC/VA Levels: Toggles the visibility of the Point of Control and Value Area horizontal lines.
• Show Volume Profile Histogram: Displays the volume distribution as a horizontal histogram on the right side of the chart.
• Min Breakout %: The minimum percentage price move required to trigger a breakout or breakdown label.
• Inside VA Lookback: The number of preceding candles that must have been within the Value Area to qualify a subsequent move as a valid breakout.
• VAH/VAL/Profile Colors: Customizes the visual appearance of the Value Area High, Value Area Low, and the histogram bins.

FAQ

How do I interpret the Point of Control (POC)? The POC represents the price level with the highest traded volume for the selected period. It often acts as a "magnet" for price or a significant level of support and resistance because it represents the highest level of agreement between buyers and sellers.

What is the difference between VAH and VAL? VAH (Value Area High) is the upper boundary of the range where 70% of volume occurred, while VAL (Value Area Low) is the lower boundary. These levels define the "fair value" zone; moves outside of these levels suggest the market is searching for a new equilibrium.

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.