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3. Volume analysis
What volume measures
Candle volume is the quantity or monetary turnover of executed trades during an interval in the selected source. Units can be contracts, the base asset or the quote currency. Put measurements on a comparable basis before comparing two symbols.
Volume Profile distributes volume across price levels for a selected window. POC is the level or price bucket with the largest volume under the profile algorithm. Its position depends on bucket width, period boundaries, data quality and how candle volume is distributed inside its range.
If only OHLCV candles are available, the actual distribution of trades inside them is unknown. Uniform allocation or assigning volume to a typical price is a model approximation. It must not be portrayed as an exact trade tape.
Value Area and interpretation
Value Area defines the region containing a selected share of profile volume. A common setting is 70%, but that is a construction parameter, not the probability that the next price will lie inside. Different algorithms for adding neighbouring buckets can produce different VAH and VAL.
A return to POC means a return to a level of substantial historical exchange within the chosen window. It does not guarantee support, resistance or "fair value". In a trend, price can move far away and fail to return within a convenient period.
For a research rule, fix the beginning and end of the profile before entry. If the profile ends after the trade and includes its development, the level depends on the future. Label session, fixed and rolling profiles separately.
Open interest and funding
Open Interest is the volume of outstanding contracts under the provider's definition. Every open contract has two sides; rising OI alone does not mean "there are more buyers than sellers". Interpretation requires price, measurement units and context.
Dollar-denominated OI can increase because price changes even when the contract count is unchanged. Comparing absolute OI across venues requires accounting for multipliers. An aggregator changing exchange coverage can create an artificial jump in the series.
Funding is a payment mechanism for a perpetual contract. On a typical crypto venue, a positive rate means longs pay shorts; check the particular contract's rules. Receiving funding does not make a position risk-free: price movement can outweigh the payment many times over.
Example. A practice notional of 1 000 and a rate of 0.01% per settlement interval produce a payment of 0.10 in the settlement currency under the relevant conditions. Four intervals cannot automatically be recorded as a cost of 0.40: notional, rates and holding time can change.
Exercise. Choose one profile and record its source, window, bucket increment, volume unit and Value Area algorithm. Compare two bucket sizes. If POC shifts, explain it through model parameters rather than inventing a change in large participants' intentions.