One of the most crucial indicators in the cryptocurrency industry is trading volume. Crypto trading volume helps traders comprehend market activity by displaying the volume of a certain cryptocurrency that has been exchanged over a specified period.
Trading volume is an important indication for effective trading since it allows market players to assess interest, liquidity, and the possible direction of price movements.
Here we will discuss what is trading volume in crypto, how is volume calculated in crypto, and how volume affects the crypto price of any digital asset.
What is crypto trading volume?
Crypto volume is a crucial metric in the world of cryptocurrencies, as it gives an idea of the level of activity of buyers and sellers of a particular crypto asset. It refers to the amount of a cryptocurrency traded within a specific period, which could be for a particular crypto asset or the total traded amount of all cryptocurrencies.
Strong market interest and liquidity are frequently indicated by high trading volume, which makes it simpler for traders to complete deals at the prices they want. Conversely, low trading volume might indicate a lack of interest or market activity, which could make it difficult to execute big deals with little effect on the price.
Cryptocurrency traders rely on the volume of a crypto asset as an indicator based on the fact that it reveals what is going on in the market. A trader is interested in how many people buy or sell a cryptocurrency at a particular time. With the information retrieved, the trader can make informed decisions like knowing when to enter the market or exit it.
Now that we have explained what is trading volume in crypto, let’s discuss why volume in crypto trading matters.
Why does volume matter in crypto trading?
The volume of a crypto asset reveals a lot. For example, a low trade volume shows that the activity in the market of a crypto asset is passive. This means that people are not actively trading the asset. On the other hand, a high trade volume signifies that buyers and sellers are active in the market.
When the buying volume is high, this could also signify a bullish trend. It means that there are a lot of buyers in the market, which usually drives up the price of such crypto assets. Also, when the selling volume is high, a lot of traders are selling off a particular cryptocurrency which in turn leads to a downturn in the price of the cryptocurrency.
Furthermore, price patterns are frequently confirmed by trade volume. For example, a price rise is seen as more dependable if it is followed by significant volume. On the other hand, low-volume price changes might be considered weak or unsustainable. Traders may evaluate the strength of market movements and make more educated judgments by having a better understanding of this connection.
How to measure crypto trading volume?
Consider an example of a trader who wants to sell 2 BTC at $100,000 each. When the transaction is completed, it will be recorded as part of the Bitcoin volume at the time of sale. This means that $200,000 will be added to Bitcoin’s (BTC) volume after the transaction. This also applies to other traders as well. Traders can use these records to make informed decisions.
The volume in cryptocurrency tells the viability of the market of such cryptocurrency. For example, in a situation where the volume is relatively high, but the crypto asset’s value is either moving downward or upward, the market trend is usually considered viable. And when the volume is relatively low, traders consult other indicators to make informed decisions.
Data on trade volume for both individual cryptocurrencies and the market as a whole is shown on platforms such as Binance, Coinbase, and CoinMarketCap. Traders may more easily compare assets, examine volume patterns, and spot possible trading opportunities with the help of these tools.
How does volume impact price movements?
In the cryptocurrency market, trading volume has a big impact on price changes. Because there is more demand when there is a large buying volume, prices frequently climb. On the other hand, when supply grows, increased selling volume tends to drive prices lower.
Traders can also determine the strength of price movements with the aid of volume. For instance, a large trading volume combined with a significant upward price movement is seen as more dependable than one with a low volume. Comparably, a price drop with little volume might suggest that sellers are not interested in the market and that there may be support for the price at its present levels.
Volume indicators in crypto trading
Traders employ a variety of volume indicators to identify volume in cryptocurrency assets. The Volume Weighted Average Price (VWAP), which determines the average price weighted by volume, and the On-Balance Volume (OBV), which measures cumulative volume to gauge buying and selling pressure, are typical examples. These resources assist traders in determining possible entry or exit opportunities as well as market mood.
Furthermore, volume surges might indicate market breakouts or reversals, giving traders important information about potential future price moves. Making wise trading selections requires keeping an eye on both price trends and volume statistics.
Because they reveal whether a price movement is backed by substantial activity, volume indicators are crucial for evaluating market trends. Volume indicators may be used in conjunction with other technical analysis techniques to provide traders with a more complete picture of the market and help them make more educated decisions.
What does trading volume mean in crypto?
The entire quantity of cryptocurrencies exchanged over a certain period is referred to as the trading volume. It helps traders evaluate market liquidity and trends by indicating the amount of activity and interest in a certain asset. Strong engagement is indicated by high trade volume, whereas low volume denotes less activity.
What is the 24-hour trading volume in cryptocurrency?
The total amount of cryptocurrencies exchanged in the last 24 hours is known as the 24-hour trading volume. Because it gives traders a quick overview of previous market action and aids in identifying current trends and liquidity levels, this indicator is often employed.
Is high volume good for cryptocurrency?
Since high volume denotes substantial market interest and liquidity, it is typically regarded as positive for cryptocurrencies. Additionally, it validates the robustness of price trends and facilitates traders’ execution of transactions without causing a major influence on the price.
What is a good trading volume for cryptocurrency?
The particular coin and the state of the market determine an appropriate trading volume. It is typical for well-known cryptocurrencies like BTC and Ethereum to trade for billions of dollars every day. A “good” volume needs to be adequate for smaller assets in order to provide liquidity and effective price discovery.
