What Is Trading Volume In Cryptocurrency And How To Analyze It
One of the most important things you should bear in mind in trading crypto is the trading volume. If you miss understanding this concept thoroughly, it can cost you your entire investment and time. That's why in this article, we will discuss just that. We will define what trading volume in cryptocurrency is.
Why should you care about trading volume?
Like other terms you should know by heart, cryptocurrency trading volume is needed to identify investments that suit you. A cryptocurrency token or coin might look like a shiny object, but having no trades tells you that it is risky to deal with. Assets with low volume are a tell-tale sign of a dead one, and they could even be withdrawn from an exchange for it!
You can try using unconventional trading volumes to recognize opportunities to gain money in the current market, too. This will probably push the prices up once investors exhaust the now available stock in the order books.
What is a trading volume in cryptocurrency?
The number of assets traded during a specific time frame is your trading volume. A chart shows this with green and red vertical bars. When you look at a 4-hour BTC chart, volume bars show the amount of BTC that exchanged hands during the time frame. On the other hand, a 15-minute BTC chart’s volume bar displays the number of BTC traded within those specific times.
We remind you that don’t be swayed by the volume bar’s colors. Many people think that a green bar means buy volume, while a red bar shows the sell volume. In reality, the bar's color is just a sign of the price candle's closing direction and does not give precisely the directional quality of the underlying trading volume. In other words, the volume is just the amount of traded assets. Remember this when you are analyzing volume.
How cryptocurrency trading got popular?
One of the reasons that crypto trading is so profitable is because Bitcoin, the original cryptocurrency, is very volatile. With this, the price fluctuates up and down within a single day. Thus, profitable traders can look for patterns and predict when the coin's price will go up. They can buy before then and sell the crypto coin when the price is about to fall. This technique now leads to huge profits. It is clear that with the correct trading decisions, a person can gain lumps of money. But also, they can make that money disappear quickly. So, only invest what you afford to lose.
Plus, several processes and products let traders be profitable and more agile - especially those who have come in from the traditional trading scene. This comes margin trading, which includes leveraging. Trading in cryptocurrency has been getting popular lately. This happened as traders have realized that there is a ton of money made when trading. And then, it has even started spilling out into traditional institutional trading settings.
Example of a trading volume
Let’s give you an anecdote.
For some time, John has been watching a specific crypto coin, and he starts to see a pattern. As he sees the volume is steadily rising, he takes this as his green light to start buying in. He invests for a fair price, and within some days, the volume exploded for his token.
The price goes up. He continues to monitor the chart, and soon he sees the trading volume is falling. He feels that current volumes will not support the asset price, and he sells to take his profit. It seems he was right. Within a week, the cost of his token begins falling due to a lack of demand. Jimmy has preserved his gains by recognizing the importance of trading volume.
How to analyze trading volume?
Almost every exchange platform will tell you the trading value, but this can sometimes be misleading. For many crypto coins, most of the trading volume to just a few exchanges. This means you may not be seeing the whole picture.
It's essential to use an aggregated tool to compare the total trading volume. Compare it to other cryptocurrencies and their timeline to see whether the price is sustained or if there is an opportunity coming.
Why does a trading volume decrease?
A trading volume decreases when crypto investors become more doubtful about an investment or the entire cryptocurrency market. With this, they could start taking money out of the market, and the market’s trading volume dramatically decreases.
When you recognize that the activity decreases your investments, you must now be attentive to shield your money. At this moment, consider now moving some of your investment to other areas, which will surely depreciate because of lowering trading volume.
How cryptocurrency price and trading volume work hand in hand?
Good trading volume encourages many players in the market. Consistency of a reasonable volume and traders stay through. Then the value will need to appreciate for new orders.
Also, the price will likely go down without a demand to buy the exchange's inventory if the volume falls. Carefully reading the volume and the order book can give you many profitable cryptocurrency trades.
What is abnormal trading volume?
Abnormal activity indicates an asset’s sharp spikes in volume – and it can be risky to cryptocurrency investors. In many instances, assets with abrupt large volume spikes could be trading at inflated prices. It would help you be mindful if you pay more than the coin’s price. If you invested in assets that are seeming to inflate, it's the moment to cash out your gains before it all crashes. Click here to know more about trading volume!
Before you invest your hard-earned cash into trading crypto, you should bear in mind the trading volume. It can cost you your entire investment if you fail to comprehend this concept. So, if some crypto guy asks you – what is trading volume in cryptocurrency? You should be able to explain this term in a snap simply.
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