Lets examine what Is volume In cryptocurrency trading and how to use the data!
Volume is an indicator of the liquidity of a particular cryptocurrency. This simply means it shows the level of activity in trading that is happening at any given time and in any given currency. In simple terms, it is how many coins are actively being traded. This information can help you to determine the trading demand for a particular coin. From there you can determine whether it has enough support to be worth investing in.
As a rule of thumb, the more popular and widely accepted a cryptocurrency is, then the higher the volume in trading will be. The volume shows how many coins are traded in cryptocurrency exchanges at any given moment. It can tell you how much active interest there is in trading that cryptocurrency at that time.
The Meaning of Volume in Cryptocurrency Trading?
Volume is a measurement of how much a commodity has been traded over a particular period. For Crypto trading, this will be the 24-hour volume. The Volume numbers are the total amount of coins that have been transacted within the last 24 hours. This can give you a rough idea about the price trend in near future.
Volume can also indicate the interest of investors or market sentiment. There are many ways to view the Volume trend in cryptocurrencies such as a bar chart, line chart, and histogram. the most popular ones will be the line and bar charts. Many charting applications will chart volume as a bar graph below a candle-stick chart.
How You Can Use Volume To Trade Or Invest Better?
Volume is one of the demand indicators, so it shows the level of demand for a particular cryptocurrency. You can use volume metrics to predict the future price action of a currency.
Suppose a coin shows strong volume, is traded consistently, and shows consistent trading activity. Then you can be pretty confident about its future price action. The goal of looking at volume is to understand how volume is moving the price. When volume is up and the price is down there simply are more sellers than buyers. Conversely, when the volume is high and the price is moving up it is clear there are more buyers than sellers. You should always try to trade considering your volume indicators. As such, you will develop a great advantage over the market.
As we discussed earlier volume means active participation in cryptocurrency trading which involves the number of exchange participants and contracts traded. Volume is one of the most important factors that should be considered while performing trade research. The Volume can give you an idea of how much currency it makes sense to try to acquire. Basically, you want the market volume to support your order when you are ready to sell.
Since volume directly impacts market price calculation, it is important to understand what market price is.
The market price is the price of cryptocurrency calculated from the currency value concerning another available cryptocurrency. The market price is also called the exchange rate. For example, if the ETH value goes high in comparison to BTC, then the BTC-ETH exchange rate would be high. If the BTC value goes high in comparison to ETH then the BTC-ETH exchange rate would be low.
Low volume means low participation which can be due to a number of factors such as:
- poor company reputation
- lack of trust among cryptocurrency traders
- lack of popularity among users
As with other aspects of price action, analysis of trade volume will demonstrate trends. When doing volume analysis try to identify the volume trends.
Volume analysis helps a lot in determining the best cryptocurrency to invest in. The higher the volume of exchange, the more opportunities to jump in or out. A good example would be the bitcoin trading volume chart that indicates that the bitcoin price tends to go up in comparison to other cryptocurrencies due to high demand and active investors.
Is High Volume Good For Crypto?
Absolutely yes. Although we do need to understand that “High Volume” is a relative term. High volume on a Bitcoin chart will be a different definition than on a lesser-known Altcoin chart. Beyond the volume of a currency you need to understand the volume of that coin on your exchange.
Is Higher Volume Bad For Crypto?
No, not at all. high volumes can add liquidity to a market and this can be extremely important for traders. High volume usually indicates that there is a lot of interest in a currency or asset. You can use it as an indicator to predict if the market will move up or down. If volume is up and price is up you have an asset that is desirable. If volume is up and the price trend is down, then you should consider selling!
Is Volume a Necessary Metric for Valuing Coins?
Yes. It shows how many users are interested to trade or invest in that particular currency. If the coin has a high volume and is listed on many exchanges then you can expect that its price will soar in the future as more traders will be attracted to purchase at low prices as compared to individual values.
If the coin does not have any trading volume then there might not be enough demand. Hence, it has low chance of being traded or bought by investors. By observing volume you will get to know how engaged the community is around the crypto coin or project.
What Are Some Important Metrics Volume Can Indicate?
Volume can indicate the engagement or popularity of any currency. If the volume is high in comparison to other currencies then it means the coin or project is popular among traders. This can add up if you use Volume trading strategies because it will indicate price fluctuations in the future.
Supply and Demand
The price of any commodity whether physical goods or digital assets is driven by supply and demand. When supply is high and demand low the price will fall. When supply is down and demand is up you can expect the price to be increasing. Most crypto altcoins are set up on a controlled supply system so that investors can predict future performance with some level of confidence.
What Are Some Good Indicators For Determining Volume Trends?
A handful of metrics such as price, market cap, and trading volume are indicators used when determining a price trend.
On-Balance Volume Indicator
On-Balance Volume (OBV) is a measure of how active a commodity is over a given period of time. It sums up the volume traded on up days and subtracts the volume traded on down days. By looking at the indicator, we can see which prices are moving in a certain direction based on how confident investors are.
The OBV indicator is based on the idea that when a market moves with more volume than usual. Simply put, it means that there is more conviction behind the move. The volume traded is more important than the direction of the stock market. If the price closes higher today than it did yesterday, this means that a lot of people bought today. It sounds rudimentary but this simply means the coin is worth more than it was yesterday. On the converse, if the token closes lower today than it did yesterday, then the volume is considered down volume.
Rather than looking at the OBV value alone, traders should focus their attention on the direction the indicator is pointing. If the price is going up, the OBV graph might show higher peaks and higher troughs. This means that the price is likely to keep going up. If the price of something is going down, the OBV graph might show lower peaks and lower troughs. This means that the price is likely to keep going down.
Another strategy is to look for divergence when the OBV is moving in the opposite direction of the token price.
Volume-Weighted Average Indicator
The Volume-Weighted Average Price is a way to see what average price an asset has been trading at throughout the day. the indicator is calculated by taking into account both how much it has been sold and how much it has been bought.
This indicator is used on intraday charts, and resets at the start of every new trading session. Most traders use VWAP (available-to-sell) as a trend confirmation tool to help them see the trend in price action.
If the asset price above the VWAP line, it might be a good time to sell short. If you do this, be sure to watch out for a bounce around the primary volume support.
Money Flow Index Indicator
The Money Flow Index (MFI) measures how much buying and selling is going on in the market. When the MFI is high, this suggests that there is pressure on the market, and when the MFI is low, this suggests that the market is calm.
The MFI is a tool used to identify similarities and differences between data sets. This is helpful when you want to make sure that your data is accurate and consistent. The MFI is checking to see if there are any potential entries in its overbought and oversold territories. When the MFI readings are high, traders are usually confident that the market is about to go in a particular direction.
The “MFI” (money flow index) is a tool that gauges how overbought or oversold the market is. When the MFI is high, it usually means the market is overheated and may be ready to go short. The “RSI” (relative strength index) is a different tool that doesn’t take volume into account.
The MFI (moving average for individual assets) is a measure of how many tokens are trading in the market at any given time. It’s also known as the volume-weighted RSI. This is because it takes into account how many much is being traded on each asset, rather than just how many shares are sold.
Volume is an important aspect of trading and can at least give a hint about upcoming market volatility. Volume trends are usually applied in cycles that usually reflect the future market volume and volatility.
Many individuals use Volume analysis to determine the right moment to get into a trade or an investment. it is important to note that volume does not mean that there is any inefficiency in it but if the trading volume is low then you can’t expect too much from it.