There is a major difference between Volume Profile and Market Profile indicators, and so many beginner traders are confused with it, so i have decided to create this educational post, with the purpose of clarifying this.
Similarities between Market Profile and Volume Profile
- Both indicators will have their calculation based on the time axis and price axis, or between session open and close, and, session high and session low.
- Both indicators will divide the session high/low distance into certain price segments
- Both indicators are calculating the activity inside a certain price segment, at a certain time
Differences
- The activity that Market Profile is calculating in the price segments, is the counting of candle sticks that have passed thru that certain segment. Every time a candle stick is going thru a price segment, it will be recorded with a letter. Starting in alphabet order at the beginning of the session. Like A for the first candle from the session, B for the second, etc. Letters are called TPO, time price opportunity.
- The activity that Volume Profile is calculating is the counting of candle sticks that have passed thru that certain price segment, AND, will sum the buy and sell volume in a centralized exchange, or the up and down tick in a decentralized exchange. In the end, showing only the summed volumes at each price segment from the session.
In conclusion, the Market Profile is counting the number of candlesticks thru a price segment and Volume Profile is counting the volume inside a price segment.
I consider the Market profile limited in comparison with Volume Profile, but that is just personal opinion.
Don't Stumble Trading. Trade Safe!
Similarities between Market Profile and Volume Profile
- Both indicators will have their calculation based on the time axis and price axis, or between session open and close, and, session high and session low.
- Both indicators will divide the session high/low distance into certain price segments
- Both indicators are calculating the activity inside a certain price segment, at a certain time
Differences
- The activity that Market Profile is calculating in the price segments, is the counting of candle sticks that have passed thru that certain segment. Every time a candle stick is going thru a price segment, it will be recorded with a letter. Starting in alphabet order at the beginning of the session. Like A for the first candle from the session, B for the second, etc. Letters are called TPO, time price opportunity.
- The activity that Volume Profile is calculating is the counting of candle sticks that have passed thru that certain price segment, AND, will sum the buy and sell volume in a centralized exchange, or the up and down tick in a decentralized exchange. In the end, showing only the summed volumes at each price segment from the session.
In conclusion, the Market Profile is counting the number of candlesticks thru a price segment and Volume Profile is counting the volume inside a price segment.
I consider the Market profile limited in comparison with Volume Profile, but that is just personal opinion.
Don't Stumble Trading. Trade Safe!
That is because on centralized markets there is access to buy and sell orders, so it makes sense to Volume Profile indicator.