In the 24/7 sleepless digital battlefield of the cryptocurrency world, trading volume and price intertwine like the double helix of a candlestick chart, weaving the code of market sentiment. This article will guide you to master the golden rules of volume-price analysis, decode the traces of major players' operations, and capture fleeting trading opportunities.
What is volume
First, let's explain what volume is in simple terms. Volume is like how many of a certain product were sold in a marketplace over a day. In the cryptocurrency market, it refers to how much currency was traded in a given time frame, which could mean how many coins were bought and sold or how much money was spent on these transactions. There is an inherent relationship between the price fluctuations of a cryptocurrency and its trading volume. Investors can analyze this relationship to assess the situation and make trading decisions.
What is price
This is similar to the price tagging of goods in a market. In the cryptocurrency market, there is the opening price, closing price, and the highest price reached during the day, as well as the lowest price.
Principle of volume-price relationship
The so-called volume-price relationship refers to the synchronous or divergent relationship between trading volume and price. There are three viewpoints in the market regarding the relationship between trading volume and price:
1. Price is the primary concern, while trading volume is secondary.
2. Trading volume leads price movements
3. Trading volume verifies price patterns
These three viewpoints have no right or wrong; it's just a matter of different perspectives, and there is no strict distinction. Here, we should mention that our cryptocurrency market is a collective behavior rather than an individual one. Since it is a collective behavior, there are differences within the group. Some people will start from their own perspective, some will start from a financial perspective, and others from the news perspective. However, there is one thing that remains unchanged: regardless of the perspective or factors involved, you will ultimately have to reflect it in your operational behavior. Operational behavior will inevitably lead to changes in the market or the funds of the cryptocurrency. You must use money to realize your ideas, which means using your real money to buy and sell to achieve your judgment of the market. Therefore, this is also the fundamental principle of the theory of money driving the market. As for whose funds come first to drive the market, or who triggers the rocket market closure, it doesn't matter. Regardless of the type of person or role, it must be reflected in terms of funds. Such behavior will lead to price fluctuations and changes in indicators.
Volume rises, price rises
Volume increase and price rise mainly refer to a phenomenon where the price of a single cryptocurrency rises in sync with an increase in trading volume. Volume increase and price rise only occur in upward trends, mostly at the beginning of upward trends, with a small portion occurring in the middle of upward trends. After a prolonged decline and bottom consolidation, many positive factors gradually emerge in the market, enhancing market expectations and making trading more active. With the increase in trading volume and the simultaneous rise in price, buying can yield short-term profits.
Volume rises, price stable
Volume increase and price stable mainly refer to a phenomenon where the price of a single cryptocurrency fluctuates around a certain price level despite an increase in trading volume. Volume increase and price stability can occur at various stages of both upward and downward trends. If the price of a cryptocurrency is in a low-price area after a prolonged decline and trading volume starts to increase, but the price does not rise in sync, this trend may indicate that new funds are suppressing and building positions. Once the price turns upward in effective conjunction with trading volume, it indicates that the bottom has formed.
Volume stable, price rises
Volume stable, price rises mainly refer to a situation where the trading volume of a single cryptocurrency remains almost at a certain level while the price increases. This generally indicates stable trading, as everyone is unwilling to sell their holdings, which supports the price.
Volume contraction, price rises
Volume contraction and price rise mainly refer to a phenomenon where the price of a single cryptocurrency rises despite a decrease in trading volume. This phenomenon often occurs at the end of an upward trend and occasionally appears during the rebound of a downward trend. In a sustained upward trend, moderate volume contraction and price rise indicate a high degree of control by the main force, with a large number of circulating chips locked by the main force. However, since the volume contraction and price rise indicate a divergence trend, if trading volume expands again during the subsequent upward process, it may mean that the main force is offloading at a high position.
Volume contraction, price stable
Volume contraction and price stability mainly refer to a situation where the price of a single cryptocurrency remains almost at the same level while trading volume decreases. This generally indicates that the current market trading list is mainly observational, with no clear direction.
Volume contraction, price fall
Volume contraction and price fall mainly refer to a phenomenon where the price of a single cryptocurrency also falls in sync as trading volume decreases. Volume contraction and price fall can occur in the middle of a downward trend or the middle of an upward trend. In a downward trend, volume contraction and price fall indicate that investors, after offloading, no longer engage in 'short-covering,' and the price will continue to fall. Investors should mainly hold their positions and observe.
Volume stable, price falls
Volume stable and price fall mainly refer to a phenomenon where the price of a single cryptocurrency actually falls despite an increase in trading volume. Volume increase and price fall mostly occur in the early stages of a downward trend, with a small portion appearing in the early stages of an upward trend. In the early stages of a downward trend, after a significant rise in price, the number of profit-taking chips in the market increases, prompting investors to sell their cryptocurrency tickets, resulting in a price decline. This high-volume increase and price fall phenomenon serves as a sell signal.
Volume rises, price falls
Volume rises, price falls mainly refer to a situation where the trading volume increases while the price actually falls, generally indicating severe selling pressure and an advantage for the bears, possibly indicating the main force is offloading.
Two major categories of situations
Volume and price move in the same direction
This means that the price and trading volume change in the same direction. The price rises, and the trading volume also increases, indicating continued market optimism; the price falls, and the trading volume decreases, suggesting that sellers are optimistic about the market's future, holding back sales, and a rebound is still very likely. (Divergence from volume contraction and price fall)
Volume and price divergence
This means that the price and trading volume show opposite trends. The price rises while trading volume decreases or remains stable, indicating that the upward momentum of the price lacks support from trading volume and is difficult to maintain; the price falls but trading volume increases, indicating a gloomy outlook for the future, as investors fear a catastrophe and sell off.
