Importance of trading volume in market trend assessment
Cryptocurrency took the world of storm, with its growing value and collapsing at a fast pace. As the market continues to fluctuate, traders and investors are looking for ways to make known decisions about what coins will grow or decrease. An aspect that is often overlooked when evaluating market trends is the trading volume.
In this article, we will explore the importance of trading volume in determining market trends and how it can be used as a valuable tool in cryptocurrency investments.
What is trading volume?
The trading volume refers to the total number of units traded on an exchange or platform over a certain period. It is a key measure that provides a perspective on the level of interest and participation in a certain class of cryptocurrency or assets.
Why is the trading volume for market trends important?
- Confirmation bias : When the trading volume is large, it may be tempting to ignore the smaller volumes as a proof of market volatility. However, this approach can lead to confirmation prejudices, in which traders are more likely to interpret price movements as meaning a strong tendency when, in fact, they can simply be the result of higher liquidity.
- Over-Exuberance : Instead, the low trading volume can also be seen as an exuberant by some investors. This is due to the fact that smaller volumes may indicate that the market is not as liquid or attractive for traders, which causes them to reject it altogether.
- Volume and identification of trends : High trading volume is more likely to confirm a tendency than smaller volumes. When prices move in a direction, the large volume can be seen as a proof of strong support, while the low volume may indicate resistance.
The way in which trading volume can inform market trends
- Trend confirmation : As mentioned above, the high trading volume can serve as a confirmation that a particular trend is real and not just the result of the market feeling.
- Volume ticks : Small increases in trading volume can be indicative for increasing interest from traders. This can lead to higher price movements or confirm existing trends.
- Volume price price reactions : When the market sees significant changes in the trading volume, it can react by adjusting its price. For example, if a large increase in volume leads to a price movement, it may indicate that the market is ready for additional increases.
Popular Cryptocurrests and their trading volumes
- Bitcoin (BTC) : High trading volume, with over 500 million units traded per day.
- Ethereum (ETH) : Moderate trading volume, with approximately 100-150 million units traded daily.
- Litecoin (LTC)
: reduced trading volume, with less than 50 million units traded daily.
Conclusion
In conclusion, the trading volume is an essential factor to consider when evaluating the market trends in investments in cryptocurrency. Analyzing the level of interest and participation in exchanges or platforms, traders can get a better understanding of the market feeling and make more informed decisions about what coins will grow or decrease.
Although the large trading volume can be a sign of strong support or confidence, it is not always indicative for a trend. Instead, small volumes may indicate resistance or caution. By combining the trading volume with other fundamental technical indicators and analyzes, traders can create a more comprehensive image of the market feeling and make more informed investment decisions.
Remember -va
- The trading volume must be considered together with other factors, such as the action of prices, technical indicators and fundamental analysis.
- Market trends are not established in stone, and trading volumes can be changed over time.
- Stay attentive to the changes in the trading volume and adjust the investment strategy accordingly.