Understand the Volume Indicator in the Cryptocurrency Market.
When it comes to financial market analysis, many beginner traders end up focusing solely on price movements. However, to truly understand the strength of a trend or identify potential reversals, trading volume is an essential indicator. Let’s explain in simple terms what volume is and how it can be used to help you make your cryptocurrency investment decisions, even if you’re just starting out.
What is Volume Indicator?
Volume is nothing more than the amount of assets (cryptocurrencies, stocks, etc.) traded in a given period of time. It shows how many units of an asset were bought and sold. A high volume means that many people are trading that asset, while a low volume indicates that there is less interest in the market at that moment.
Why is Volume Important?
Volume helps confirm whether a price movement is real or fake. Imagine that the price of a cryptocurrency is rising, but the volume is low – this could be a warning sign. An upward movement without volume may only be temporary and not sustained by real buyer interest. In other words, volume acts as a “confirmation” of the price trend.
Additionally, volume is important for predicting potential trend reversals. If an asset’s price is rising but volume starts to decline, it could be a sign that the momentum of the rally is weakening and a decline could be on the way.
Volume in Breakouts
One of the most important times to watch volume is when resistance or support breaks out, known as "breakouts". Resistance is a price where the asset usually stops rising and retreats, while support is a price where it usually stops falling and rises again. When the price breaks through these levels, a significant change in the market is expected.
However, for this breakout to be considered strong and reliable, it needs to be accompanied by an increase in volume. If the price breaks through a resistance, but the volume is low, the movement may not be sustained, and the price may end up returning below the resistance.
Practical Example of Volume and Breakout
Let’s say Bitcoin is trying to break through the $69,000 resistance. If trading volume increases significantly during the breakout, this indicates that there is momentum behind the move, as more people are buying the cryptocurrency, believing that it will rise in value in the future. However, if the volume doesn’t increase along with the price, this could indicate a lack of confidence in the move, and the price could start to fall again.
How to Use Volume to Avoid Mistakes?
Volume can be a powerful ally in avoiding bad decisions in the market. Imagine that you are observing an uptrend in a cryptocurrency, but you notice that the volume is decreasing. This could indicate that the rally is losing momentum, and the price may start to fall soon. In this case, you can avoid entering the trade or, if you are already in, adjust your stop loss to protect your capital.
Tips for Using Volume in Your Trading
Always check volume in conjunction with price: Volume alone will not give you all the answers. It should be used in conjunction with price analysis and other indicators to get a clearer view of the market.
Watch for divergences: When price and volume move in opposite directions (e.g. price goes up but volume goes down), it can be a warning sign of a possible reversal.
Use volume to confirm breakouts: If price breaks through an important support or resistance, check the volume to see if the move has strength. A breakout with low volume may be false.
Manage your risks: Even using volume as an indicator, the cryptocurrency market can be unpredictable. Always have a stop loss to protect your capital, and don’t put all your money on a single trade.
Conclusion
The volume indicator is a valuable tool for any trader, whether beginner or experienced. It helps confirm trends, identify true breakouts, and predict price reversals. When combined with good price analysis and other indicators, volume can significantly increase your chances of success in the market.
Remember: there is no such thing as an infinite rise, just as there is no such thing as an infinite fall. Volume is an important piece of information to understand these fluctuations. Keep your head on straight, manage your risk well, and never enter the market impulsively. The cryptocurrency market offers many opportunities, but you need to know when to enter and exit.
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Perfect friends, in this article we learned about the importance of volume in the crypto market, now leaving all formalities aside, I will finally teach you how to find the volume on the chart of your favorite crypto 😉
Entering your crypto tab you will see this, below your graph there will be a bar with some names (indicators) you will click on "Vol" (volume).
Right after clicking there, some green and red bars will open between the graph and this bar with indicator names.
All set, volume open on your chart ready for you to train now.
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If you have any questions, you can leave them in the comments and I will answer them explaining everything in detail so you can be sure how the volume works 🤝
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