People only trade for things that have value. In buy-and-sell trading, people buy something to sell at a higher price in the future. The ultimate goal is to become profitable. With this, transactions exist. And the more people trade on something, the more value that thing gets. In the crypto market, that thing is the cryptocurrency, or as they call it, digital coin. Systems count the number of transactions, and that amount refers to trading volume. Keep reading this article to understand the basics of the trading volume.
What is trading volume?
Trading volumes is a common term used in technical analysis of the crypto market. There is nothing fancy about this term. It is simply referring to the sum of transactions made in a certain period. The measure that tells how much amount of crypto gets traded. They are located on the floor of a chart and represented as colour green and red bars. Green bars indicate that the volume is positive and red if negative. If it is green, the price closed higher than it opened. In contrast, the red bar indicates that it closed lower than the opening. The colour-coding makes it easier to see if the volumes are bullish or bearish.
It is important to understand trading volumes as they play a role in conducting technical analysis. As defined by Hayes of Investopedia, technical analysis is the “trading discipline employed to evaluate investments and identify trading opportunities by analysing statistical trends gathered from trading activity, such as price movement and volume.”
What does trade volume indicate?
It gives traders a clue as to what the market is doing. Vast volume, for instance, tells a trader that more buyers are coming to the market, which is a good thing. Why? It indicates that more people trust that cryptocurrency and are willing to use it in transactions as they see its value. High trading volume gives an impression to the public that a cryptocurrency is significant and reliable, attracting more people to use it.
Keep in mind that volumes can only give clues as to when the market will change, when is the best time to sell, and the best time to buy crypto. In the end, no one truly knows what will exactly happen in the crypto market. A rigorous study of the market is necessary before entering the crypto world.
For instance, if there is a massive spike in volume that is much bigger compared to anything else before it, that tells that it could be a good reason to get in. Note that immense trading volume does not necessarily mean the price will take off, but it tells a trader that more buyers are coming to the market. And more buyers mean more demand, so it tends to pull the price upwards; thus, it is the best time to sell crypto.
In contrast, a price decline partnered with an enormous volume signals a trader that it is the best time to buy crypto since the price is low and many people are willing to purchase. In this situation, the price tends to move upward. Traders ride along with this upward trend, waiting for the best time to get out and sell their coins since they know that the crypto market has a pump and dump environment. They know that it is not always rainbows and butterflies, so they tend to be precautious.
Moreover, a price decline with low volume after a series of high-price-high-volume could also give an idea that traders are hanging on to their cryptos, hoping that price would increase in the foreseeable future.
Where to monitor trade volume?
Trade volume varies since each type of cryptocurrency has its volume measure. Traders check the denomination of trading volume of a particular cryptocurrency using reliable crypto trading platforms like BitiQ App. Experts agree that a trader should double-check it from a couple of different exchanges and compare them if both say the same thing. This move is to make sure that the numbers are accurate and no manipulation is happening. Otherwise, the information will not be dependable and will not give a definite signal. If you are in doubt regarding the number that you see, a little research will also help. Traders try to confirm unusual surges by looking at credible news agencies like Business Insider. For example, the said news agency reported in August 2021 the astounding 950% trade volume surge in OpenSea that accounts for USD 1.22 billion worth of transactions in the past 30 days.
To sum it up
Trading volume at its core tells how valuable a cryptocurrency is. More people transacting means more people trust and value it. With this, analysts use trading volume as their indicator to know when they will buy, sell, or hold their crypto asset. It is only one of several indicators to consider when making trading decisions that make traders overwhelmed.
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