The cryptocurrency market can be seen as an integration of puzzles, where each piece is crucial to investors. Among these pieces, trading volume is an essential but often overlooked indicator. According to records, trading volume refers to the number or value of transactions completed for a specific cryptocurrency on an exchange within a set time frame, which is usually considered an important indicator of market activity and liquidity, providing deeper insights into market dynamics.
A brief introduction to what trading volume means in the cryptocurrency market? Some may still not understand, so I will explain it in detail and analyze the role of trading volume in the cryptocurrency market.
What does trading volume mean in the cryptocurrency market?
Trading volume in the cryptocurrency market refers to the total number of tokens traded for a specific cryptocurrency within a certain period. This can be defined in terms of hourly, daily, weekly, or any other time frame that suits your trading strategy. Trading volume is the volume of transactions conducted on a specific exchange, and the trading volumes from multiple exchanges can be aggregated for a more comprehensive view of market conditions.
High trading volume means high liquidity, where rapid buying or selling of assets occurs in the liquidity market, but this does not significantly affect the price, thereby achieving more effective price discovery. However, it is worth noting that high trading volume does not always equate to market efficiency. Even with high volume, factors like market manipulation, information asymmetry, and market sentiment can still distort prices.
Trading volume is not just a number; it also represents collective market sentiment and the psychological activities of traders. High trading volume usually indicates that traders have reached a high consensus on the current price, indicating a strong trend. When trading volume is high and the price is rising, it suggests that as more traders buy the asset, bullish sentiment is generated in the market. Conversely, when the trading volume is at its maximum and the price is falling, it indicates bearish sentiment, with more traders selling the asset. On the other hand, low trading volume may suggest that traders are uncertain or uninterested. For example, a small price increase with low volume may indicate insufficient trend conviction and a high chance of reversal.
How to see dealer offloading through trading volume in the cryptocurrency market?
In the cryptocurrency market, observing the relationship between trading volume and price changes, K-line patterns, volume-price divergence, and other phenomena to identify dealer offloading is a common market analysis technique. A dealer refers to a large capital investor who can control market prices. When they conduct large sell operations (offloading), it usually affects market prices and trading volume. Therefore, understanding how to judge dealer offloading through trading volume is very important for investors to assess market trends.
The following is a specific method introduction:
1. Volume increase with price decline
If the price continues to decline significantly accompanied by a large increase in trading volume over a certain period, this is usually a signal that the dealer is offloading. The dealer will sell a large number of tokens at a lower price at a high point, and large sell-offs will lead to a rapid price decline. The characteristic is that the price is falling, trading volume suddenly increases, and sell orders significantly increase.
2. Volume increase after a price surge
Dealers usually attract retail investors by pushing up prices, then offload at high points. When the dealer starts to offload after a price surge, trading volume will suddenly increase, especially in cases of high volume with price stagnation, meaning the price increase is slowing down but the trading volume is significantly rising. This indicates that the dealer is gradually offloading while buying pressure begins to weaken. The characteristic is that the price is consolidating at a high point or slowly rising, and trading volume continues to increase, with a potential for a rapid decline later.
3. Sideways movement with volume increase
When the dealer is offloading, they usually keep the price within a relatively stable range (sideways), during which the trading volume increases. This is because the dealer does not want to quickly lower the price, but rather slowly sell off tokens through a steady offloading pace to reduce market impact. The characteristic is that the price fluctuates little within a range, but the trading volume is high, indicating that the dealer is quietly selling.
4. Divergence between volume and price
When dealers offload, it may lead to a phenomenon of divergence between volume and price. Generally, when trading volume increases, the price should rise accordingly; however, if there is an increase in trading volume while the price does not rise or even falls, it may indicate that the dealer is selling a large amount of tokens, and retail investors do not have enough buying power. The characteristic is that trading volume significantly increases, but the price does not rise in sync and may even slightly decline.
5. Large orders suppressing price
To control the pace of offloading, dealers usually place a large number of sell orders to suppress price increases. Such sell orders are typically very large in quantity and the order prices are close to the current market price, aiming to keep the market price fluctuating within their ideal range for gradual offloading. The characteristic is that on the exchange's sell orders, some larger sell orders repeatedly appear, and the price changes little.
