Value area calculation step by step

A value area calculation finds the price range that holds about 70 percent of a session's traded volume. A volume profile counts the contracts traded at each price over a session. The value area is the band of rows around the busiest price that together hold the target share. This note runs the calculation step by step on eleven rows of an invented profile. The note on the point of control explained with one session covered the starting row.

The terms used here

The point of control, or POC, is the price row with the most volume. The value area high, or VAH, is the top row of the value area. The value area low, or VAL, is the bottom row. A row is one price level in the profile. In the E-mini S&P 500 future, ES, one row is usually one tick of 0.25 points.

The example profile

Here is an invented ES profile for one session. All numbers are an example.

The rows add up to 13,700 contracts. The POC is 5,041.25, with 2,600.

Step 1. Set the target

Multiply total volume by 0.70. That gives 13,700 times 0.70, or 9,590 contracts. The value area must hold at least 9,590.

Step 2. Start at the POC

The running total starts at 2,600, the POC row. The value area is one row wide, from 5,041.25 to 5,041.25.

Step 3. Compare two rows above with two rows below

The pair method compares two rows at a time on each side of the POC.

• The two rows above the POC are 5,041.50 and 5,041.75. They hold 2,100 plus 1,400, or 3,500.
• The two rows below are 5,041.00 and 5,040.75. They hold 2,200 plus 1,500, or 3,700.

The lower pair is larger, so you add it. The running total is 2,600 plus 3,700, or 6,300. The value area now runs from 5,040.75 to 5,041.25.

Step 4. Repeat with the next pairs

You have not added the upper pair yet, so it still holds 3,500. The next lower pair is 5,040.50 and 5,040.25, which hold 1,100 plus 700, or 1,800.

The upper pair is larger, so you add it. The running total is 6,300 plus 3,500, or 9,800. The value area now runs from 5,040.75 to 5,041.75.

Step 5. Stop at the target

The running total of 9,800 is above the 9,590 target, so the calculation stops. The result for this session is as follows.

The share is 9,800 divided by 13,700. It is above 70 percent because the method adds whole rows or pairs, never part of a row.

The one-row method

Some platforms compare one row above with one row below instead of pairs. Run it on the same profile.

1. Compare 2,100 above with 2,200 below. Add 2,200. Total 4,800.
2. Compare 2,100 above with 1,500 below. Add 2,100. Total 6,900.
3. Compare 1,400 above with 1,500 below. Add 1,500. Total 8,400.
4. Compare 1,400 above with 1,100 below. Add 1,400. Total 9,800.

Here both methods give the same VAH and VAL. On a lopsided profile they can differ. Suppose the row at 5,040.75 held 400 instead of 1,500. Total volume drops to 12,600 and the target to 8,820.

• The pair method adds the upper pair for 6,100, then the lower pair of 2,200 and 400 for 8,700, then 1,100 and 700 for 10,500. Its value area runs from 5,040.25 to 5,041.75.
• The one-row method adds 2,200 below, then 2,100, 1,400 and 900 above, for 9,200. Its value area runs from 5,041.00 to 5,042.00.

The trades and the 70 percent target are the same in both runs, yet the two value areas share only four rows.

Settings that change the answer

Three inputs change the result even when the trades are identical.

1. The percentage. A 68 percent target gives a narrower range than 70 percent.
2. The row size. Grouping ES into rows of 1 point instead of 0.25 points merges four rows into one and changes which rows get added.
3. The session. A profile of regular hours and a profile of the full electronic session hold different trades, so they have different POCs and value areas.

The note on what a volume profile measures shows how row size changes the shape of a profile.

Where platforms draw it

Sierra Chart lists interactive volume profile drawing in all packages. ATAS lists Market Profile and TPO on all plans. MotiveWave lists Volume Profile and TPO in its Order Flow editions. Before you compare value areas across platforms, check which percentage and row size each one uses, and write both next to any level you record. The glossary defines the profile terms used here.

A check you can run

Export or copy one session's volume at each price from your platform. Total it, take 70 percent, and run steps 2 to 5 by hand. Compare your VAH and VAL with the lines your platform draws. If they differ by a row, your platform either uses the one-row method or groups prices into wider rows.