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The whole principle of cryptocurrency trading, or any trading in fact, is to buy low and sell high, millions of people around the world are involved in this industry.
What Is Volume In Cryptocurrency
One of the most important business indicators is volume. The volume tracks the total volume of cryptocurrencies traded on all exchanges in the world and shows the trading exchanges. Volume is arguably the most important metric for day traders.
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In this guide, we’ll look at the importance of volume, how it affects cryptocurrency prices, how to research cryptocurrency volume, and the best indicators of trading volume.
Trading volume is the dollar amount of all trades of a particular coin that took place on a central exchange (CEX) and a broadcast (DEX) cryptocurrency exchange during a specified period. Volume is also used to measure how many shares are bought and sold in the stock market. Generally, the larger the trading volume, the larger the price change.
In other words, trading volume tends to increase when there is a price movement. For example, when Bitcoin fell to $5,200 during the 2020 Covid Dip, its trading volume was the highest in its 11-year history.
The large volume of cryptocurrency traded leads to a fair cryptocurrency price and reduces price distortion. Low trading volume can be a sign of a lack of market interest, as the prices offered by sellers do not meet the needs of potential buyers.
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Not always. High volume often indicates market interest in the coin and possible price increases, but it can also indicate the beginning (or peak) of a bear market as many people sell in anticipation of a lower price.
Volume affects the value of cryptocurrency due to liquidity. If the cryptocurrency has new liquidity, its price will rise. The opposite is true for inflows and outflows.
In cryptocurrency trading, liquid currencies such as USDT and USDC are used to measure the amount of cryptocurrency being traded. In Bitcoin, we measure the amount of BTC traded in USDT and vice versa.
If many people are selling USDT for BTC, it means that there is liquidity in Bitcoin and the price movement is strong. The volume of Bitcoin will increase in size, and as the volume jumps, so will the value of Bitcoin.
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By default, every cryptocurrency pair has a volume indicator. If we go to the chart of the BTC/USDT pair, the lower bars show the total trading volume and the green/red colors show that the volume results in more buying or selling:
Historically, volume has increased during major accidents. If we compare the current volume of the bear market, when Bitcoin was trading at $23,000, to the all-time high volume when Bitcoin was trading at $69,000, we can see that the volume at that time is much higher than the all-time high. .
The main reason for the highest volume during crashes is that some traders panic sell, while other traders use dollar cost averaging (DCA) and save during the crash. Because of this, the trading volume will explode from the normal level.
Liquidity is a big part of volume as it affects value – and this is more apparent in smaller coins.
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Bitcoin has an estimated $200 billion in liquid assets backing its market value (all exchanges). The liquidity to market ratio for most coins is 1:10. For example, if we have a coin with $10 million, the market cap will be around $100 million, but some coins have more liquid backing.
Here’s the problem: If a major player sells a large portion of the coin, reducing liquidity, it causes volume to increase and its value to crash.
Example: Elon Musk recently sold $2 billion worth of bitcoins on the open market. The $2 billion in sales resulted in a slight decline of less than 5% thanks to Bitcoin’s massive liquidity support. Bitcoin corrected and recovered quickly despite the multi-billion dollar sell-off.
If Solana (SOL) or Avalanche (AVAX) were sold at $2 billion, it could lead to a catastrophic collapse due to small market cap and liquidity.
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Volume growth in cryptocurrencies occurs due to price changes, but the underlying reason for volume growth varies from project to project and news cycle.
In the cryptocurrency industry, projects that receive good news, such as a new partnership or an IPO, often experience an increase in volume. When a new cryptocurrency is launched and, for example, listed on an exchange, it appears with a new audience, resulting in an increase in business activity and volume.
Conversely, if the project receives bad news, it can lead to an increase in volume. The news that Tesla sold its Bitcoin assets caused a small drop, not because of a lack of liquidity, but because of the news itself. When the cryptocurrency industry learned that Tesla was buying Bitcoin last year, it led to an increase in Bitcoin trading volume.
Another problem is that Bitcoin is currently traded on Wall Street, so it has a strong relationship with traditional financial markets and especially technology stocks listed on the NASDAQ. If the NASDAQ is in a bull run, it will likely be reflected in the price of Bitcoin.
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On most trading days, Bitcoin has the same number of buys and sells that maintain its value. When there is a change in the financial markets or when there is news of Bitcoin exploding, the volume will immediately increase. Traders need to keep abreast of the latest news to take advantage of the price promotion.
Volume measurement is essential for a successful business strategy. If we want to explain whether the price of Bitcoin or any cryptocurrency will go up or down, we need to have quantitative data that shows whether the flow is going in or out. Because if the quantity remains unchanged, then the price remains constant, and we cannot profit from the % movement.
As mentioned above, each chart automatically has a volume indicator. However, if we want to access advanced indicators, we can use the search engine in the “Indicators” menu above to find the two best quantitative indicators: “Balance Volume” and “Cash Flow Index”.
Volume balance is the most commonly used volume indicator outside of the standard volume indicator. The instructions are simple, there is no fixed limit that measures the relationship between daily volume and price. However, long-term data should not be considered because the calculation is reset every day.
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The cash flow indicator has a value of 0-100, so it is very easy to read. Although the indicator is based on volume, it is interpreted in the same way as the relative strength index (RSI), with the upper limit indicating “oversold” levels and the lower “oversold” level.
The MFI indicator is used in reverse trading to identify support and resistance levels. If the indicator reaches the upper limit, you can expect a correction. If it reaches the lower limit, we can expect the price to rise.
The current reading of the indicator is 48, which indicates that Bitcoin is not overbought or underbought and can go either way. The most likely direction for Bitcoin will be the direction of the financial market as a whole.
Volume is perhaps the most important indicator in cryptocurrency trading, whether we are trading with Bitcoin or altcoins, as it allows us to measure the level of liquidity and the direction of the cryptocurrency exchange rate.
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If you want to be sure that you are investing in a high-quality, high-liquidity project, then always choose a billion-dollar cryptocurrency with liquidity support. We also need to make sure that the volume is consistent with our trading direction in order to achieve a profitable result – especially in leveraged trading. Other indicators such as the OBV and MFI indicators can provide context on the relationship between volume and price.
To learn more about technical indicators for audiovisual materials, visit our Technical Analysis (TA) section. Crypto voting is a measure of your vote each time you check files. The lower your portfolio, the higher your voice, unless you’ve been talking about crypto in public lately, when your voice sounds like a whisper.
All jokes aside, the amount of assets traded during a given period is called volumes (that is, trading volume). This limit is common to all markets – stocks, futures, options and cryptocurrencies.
The health of the market is determined by how well the demand matches the supply. In other words, the buyer’s desire must match the seller’s desire. If the demand is (roughly) equal to the supply, the asset will be traded in higher volume. However, if there is a mismatch between supply and demand, the asset will trade at a lower price. As you can imagine, supply and demand is one of the main factors that determine how a cryptocurrency grows in value.
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