Power of trading volume: Understanding a key indicator in cryptocurrency markets
In the world of cryptocurrencies, trading volume is often misunderstood as a simple reflection of market feelings. However, it’s a lot more than that. The extent of trading, especially its absolute and relative values, is one of the most critical indicators in the cryptocurrency markets. In this article, we will explore the importance of trading volumes and why this should be considered a key metric for merchants, investors and market analysts.
What is the volume of trading?
Trading scope refers to the total number of coins or tokens that are traded over a specified period, usually 24 hours. It is calculated by multiplying the average daily course with the total number of crafts performed in this time frame. In other words, this is a recording of how many times the assets have been purchased and sold on a particular day.
Why is trading volume important?
- Market Size and Depth : A large volume of trading indicates a larger market size, which can lead to greater liquidity, wider prices and increased trade activities.
- Trend indicators : A strong trading volume can be an indicator of the trendy market, as it suggests that assets get on popularity and momentum.
- risk management : trading scope helps to manage the risk by providing a measure for potential losses. If a trader is sold at an inflated price (due to a large volume) but returns at a lower price, it can reduce potential losses.
- Market Mood : A reduction in trading volumes may indicate a bear market as customers can reduce their activity.
Types of trading volumes
- Absolute volume : This applies to the total number of transactions made over a period of time.
- A relative volume ratio (RV) : This measures a change in the percentage of the absolute volume in a particular time frame compared to the basic value (eg 100). A larger RV ratio indicates increased trade activity.
Key venture of trading volume
- The amount is not affected by the volatility of the market : when the price of the Crypto currency is unstable, its trading volume can be temporarily increased, but that does not necessarily mean that it will continue to get towed.
- Volatility is a relative : Although the high trading volume may indicate an increased activity, a low amount can still indicate strong market feelings or upcoming correction.
- Market Momentum : A significant decrease in trading volumes can signal a transition from a trend of shopping trend to a trend of sales, indicating a weakness of a potential price.
Best Practice to use trading volumes
- Set the basic value : Establish a reference value for your trading system by monitoring the historical amount of asset trading that interests you.
- Follow and adapt to : Follow the measuring information on trading volume over time and adjust your strategies as needed.
- Combine with other indicators
: Use trading volume as one of many tools to analyze market activities, not relying on it only.
Conclusion
In conclusion, trading volume is a powerful tool for understanding the cryptocurrency market and making informed decisions to buy and sell property. By following the absolute and relative quantities of trading, traders, investors and analysts can gain valuable insights into market feelings, trends and risk management strategies. As the space for cryptocurrencies is still developing, it is crucial to stay in the latest with the latest achievements in the analysis of trading volumes to move effectively in markets.
additional resources
- Coinmarketcap: Comprehensive Crypto -Valute Data Base and Demand.
- Cryptocompare: Provides real -time market information, including the amount of trading for different assets.
- TraringView: offers a number of technical indicators, including the charts of trading volumes.