How to use volumes?
6 min reading
Does this refer to a sound or an increase in a trendline? Grab this opportunity to discover in this article what it is all about.
How to use volumes?
While making predictions about the price movement, analysts use a huge number of tools. One of them is the Volume indicator (volumes) is a technical analysis tool that helps to track the activity of investors. Its calculations use the number of transactions (buying and selling) for a certain period of time. The principle of any market comes down to the supply and demand ratio. These indicators are key and directly affect the value of a crypto asset.
What are cryptocurrency volumes?
The volume of a cryptocurrency is simply the number of coins traded in the last 24 hours. It is the amount of value of a coin that has been bought and sold during the day. Trading has to do with indices and no one can really predict the exact time that is best to buy or invest coins. However, just like trend lines, the volume also helps give traders clues on how to buy, sell or invest in the cryptocurrency market. Keep in mind that volume varies with each crypto-currency. Each volume bar represents the number of coins traded during that period. On the volume chart, there are green and red bars. The common misconception is that most people think that the red bar indicates a buy while the green bar indicates a sell. However, the colors are a reflection of the closing direction of the price.
Understanding how to read the volume profile of a trending asset can actually help the crypto trader identify possible reversal orders. If you study a chart carefully, you will notice that volumes are higher during periods of downward movement. The period of low volumes suggests that bulls are reluctant to buy during this time; there could also be a period where the bears run out even if there is a slight price increase.
Note that traders tend to use the volume indicator to try to understand the strength of a given movement. If a price movement is accompanied by high trading volume, it can be said that the price movement has more validity, but if the opposite is true, it may indicate a weakness in the underlying trend.
There are high and low-volume exchanges. With high-volume exchanges, when you sell an asset, there are always buyers for it. The same is true for crypto-currencies. You can set a high price for your coins, then wait a while, and the sell order will be filled due to the low volume. The higher the volume, the higher the number of buyers, as it allows the sell order to be satisfied by the buyer’s offer and be executed faster. High volumes allow for interconversion between different crypto-currencies. While a low-volume exchange creates arbitrage opportunities, before fully committing, every trader will want to make sure they can easily transfer or withdraw their investments. Crypto-currency arbitrage can be a profitable venture if you’re looking for the right exchanges where you can buy tokens and coins at bargain prices.
There are three types of volume spikes:
- A volume spike indicates an overbought or oversold point, which is usually accompanied by a long price tail.
- A volume spike indicates a strong continuation volume and this usually occurs after a reversal in the direction of the forming trend.
- A volume spike indicates that a breakout is occurring. In this situation, the price is breaking out of a consolidation zone on strong momentum and volume.
How to use it on bit4you
In conclusion, when trading, it is always advisable to look for confluent signals from the volume indicator to support the price movement trend. You can try it on bit4you trading platform. There are many tools for convenient cryptocurrency trading. Also, note that a volume bar reflects all the stocks that were traded during the corresponding candle. If you notice several high-volume candles that do not support a particular trend, it may be a sign of an impending reversal.
In general, the ability to work with horizontal and vertical analysis is more than enough for the beginning. You should not be dispersed and try to cover all existing instruments at once. What is important in trading is a measured, systematic approach. Only forming a competent trading strategy and following it precisely will lead to great results. The volume indicator is one of the most important tools of the analysis, allowing you to track the activity of investors in a particular cryptocurrency.