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What Does Volume Mean In Cryptocurrency Trading?

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Written by Quentin Hack

There are many indicators that provide information about various tricks which can optimize your prospects and one such indicator is trading volume. Trading volume is a technical term mostly used by digital currency investors or traders. As the name suggests, it is simply defined as the number of contracts exchanged or traded within a fixed interval of time.

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So what does volume mean in cryptocurrency trading? Here we go.

What is Volume?

Volume is a technical terminology whose quantifiable value signifies the expanse of activity. All the currency units exchanged by the market participants are accumulated in a fixed amount of time equals be known as the trading volume of a crypto market.

The number of assets traded in one particular trade is initially calculated and later, assimilated to create a bar-chart representation known as the volume chart. It consists of a bar chart in the lower end which shows two types of bar: the green and the red vertical bars.

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How To Read A Volume Chart?

At the upper end of the chart, the fluctuations of the market price of a particular trade are demonstrated. In case when there is a new surge in the price action signifying a bullish pattern, the volume increases, and hence, such a trend is marked as green. In cases when there is a fall of price actions signifying a bearish pattern, the volume increases but in the opposite direction of the graph, such a trend is marked red. These are construed as new local highs and lows.

In other words, when there is an elevation in the price action of a particular asset, there is a rapid influx of participants’ activities in the market. Both bullish, as well as bearish patterns, combat for a moment of breakthrough. Such successful moments of quantum leaps and defenses work as a facilitator for the trend of price action and naturally, signify a high frequency of price movements.

Therefore, the basic logic for traders all over the world work by this rule of thumb: volume is directly proportional to the existing trend. Consequently, cumulating local highs and lows, if the overall trend of price action is increasing or decreasing, the volume bars are substantially larger in both cases.

This also suggests that whenever there is a change in trend and the participants are uncertain regarding investing or selling off of their assets, such a stage in the market is characterized by a smaller volume bar.

Some traders may switch from the conventional way of choosing units of trades to use variations in price as the substitute. This is because price-fixing initiates the possibility of market exchanges and trades between the buyer and the seller. If the fluctuations are happening in a rapid manner, it indicates high trading volume.

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Key Takeaways

After learning how each variable in the crypto market such as price actions, trends, etc., interacts with each other, it is inevitable to ask here, what does this tell us about the market mood?

If the price action of a particular asset reaches a new pinnacle in a bullish pattern, but the volume does not mark a new local high, this significant moment is characterized by a potential trend change in the near future. Followed by the same logic, if a downtrend hits a new low but, subsequently, the volume does not peak a new local high, it signifies a very weak trend.

Thus, deciphering technical analysis of volume charts will help you understand trading signals at times when it is most needed, that is, in moments of market stability and trend shift. If you can read these volume charts in understanding the cryptomarket and learn to locate these critical moments of changing trends, you will win the war.

Volume Trading and Volume Analysis

Volume analysis is crucial information to any successful investor. It provides knowledge about the potential of a particular price movement and therefore, should not go unnoticed while carrying out the technical analyses of various trading events. There are many indicators that can help you in the analytical process.

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On-Balance Volume Indicator

This is the most basic example of volume indicators. With the aid of the said indicator, the development of price action or price movement between two fixed time intervals can be compared by developing the volume of the individual time intervals.

Volume Indicator Price Divergence

Divergence signifies a bifurcation or a deviation. Technical analysis in the context of the crypto market refers to the separation of two chart trends or between the price and an indicator trend.

Advantages Of Volume Trading Over Others

It is considered more advantageous because most of the other analyses are dependent on price to make their final conclusions. Indicators such as are often designated as the time-lagging ones because these indicators are inherently designed to cause an insurmountable time lag.

However, Volume is independent of the market price and therefore, gives the traders a real-time account of the happenings of the crypto market.

Final Thoughts

Taking into consideration the volatile nature of your assets in the cryptomarket, it becomes all the more necessary to understand trading volume. You might wonder that volume is just one amongst the set of many trading signals, so why the push? Studies have shown that volume is the trading signal that the majority of the cryptocurrency participants prefer over the others.

Now that you are quite accustomed to the basics of how to read volume charts as well as the insights it provides, you can begin to anticipate the various market’s nature of mood change.

This guide provides most of the necessary information required. However, the reader must note here that volume charts provide only one subset of the market signals. There are many such analyses to be considered to make the most informed decision to start profiting in this line of digital currency markets.

About the author

Quentin Hack