The power of the trading volume: understanding a key indicator in the cryptocurrency markets
In the world of cryptocurrencies, the negotiation volume is often misunderstood as simply a reflection of the feeling of the market. However, it is much more than that. The volume of trading, in particular its absolute and relative values, is one of the most critical indicators in cryptocurrency markets. In this article, we will deepen the meaning of the negotiation volume and because it should be considered a key metric for traders, investors and market analysts.
What is the trading volume?
The negotiation volume refers to the total number of coins or tokens exchanged for a specific period, usually 24 hours. It is calculated by multiplying the average daily exchange rate by the total number of operations performed at that time. In other words, it is a snapshot of how many times a resource has been purchased and sold on a certain day.
Why is the trading volume important?
- Dimension and depth of the market : high volumes of trading indicate a larger market size, which can lead to greater liquidity, larger price movements and increased commercial activity.
- Trendy indicators : a strong volume of trading can be an indicator of a trendy market, as it suggests that the activity is gaining popularity and momentum.
- Risk management : The trading volume helps operators to manage the risk by providing a point of reference for potential losses. If a trader sells at a swollen price (due to a high volume) but then it covers at a lower price, it can minimize potential losses.
- Mercato feeling : a decrease in the volume of negotiation can indicate a feeling of the bearish market, since buyers could decrease their activity.
Types of trading volume
- Absolute volume
: This refers to the total number of transactions performed during a certain period.
2 A higher RV ratio indicates an increase in commercial activity.
Takeaway key from the negotiation volume
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- Volatility is relative : while high trading volumes can indicate greater activity, low volumes can still be indicative of a strong market feeling or an imminent correction.
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Best Practice for the use of the trading volume
- Sets a basic value : Establish a reference point for your trading system by monitoring the historical volumes of trading of the asset that interests you.
- Monitor and regular : keep an eye on the metrics of the trading volume over time and make changes to the strategies as needed.
- Combine with other indicators : uses trading volume as one of the many tools to analyze market activity, rather than relying exclusively on it.
Conclusion
In conclusion, the volume of trading is a powerful tool to understand cryptocurrency markets and make informed decisions on the purchase and sale of activities. By monitoring absolute and relative trading volumes, traders, investors and analysts can obtain valuable insights on the feeling of the market, trends and risks management strategies. As the cryptocurrency space continues to evolve, it is essential to remain updated with the latest developments in the analysis of the negotiation volume to navigate effectively in the markets.
Additional resources
- Coinmarketcap: a complete database of cryptocurrency prices and trading volumes.
- Cryptocompare: provides market data in real time, including trading volumes for various activities.
- TradingView: offers a series of technical indicators, including the graphs of the trading volumes.