In the "crazy casino" of the cryptocurrency market, the volume-price relationship is our "x-ray" to understand the dealer's thinking and find the right timing to buy and sell. Whether you are a novice just entering or an experienced player, volume-price analysis is an unavoidable "survival skill". Today, we will break it down and discuss how to follow the dealer in bottom fishing and top escaping through the volume-price relationship.
1. What is trading volume? In simple terms, it's a "disagreement chart".
Trading volume is not just a simple number; it is essentially the trace of "bullish" and "bearish" factions fighting in the market—trading volume = disagreement.
When trading volume suddenly increases, it indicates fierce arguments between buyers and sellers: sellers feel the price is too high and rush to sell, while buyers believe it can still rise and aggressively buy in; when the two sides collide, trading volume increases. Conversely, when trading volume shrinks, it indicates that everyone shares similar views: either all are bullish (no one is selling) or all are bearish (no one is buying), making the market seem like stagnant water.
Remember: Without disagreement, there are no transactions; price rises and falls are all "arguments". Studying trading volume is about understanding what everyone is arguing about and predicting who will win.
2. The "Four Major Laws" of the Volume-Price Relationship; remembering them can help avoid pitfalls.
1. Decreasing volume rising, can't stop.
The price is surging, but trading volume hasn't increased, indicating that everyone is in high agreement—everyone is bullish! At this moment, sellers are few, and buyers push the price upward, easily forming a cycle of "the more it rises, the more people buy; the more they buy, the more it rises."
For example, from late 2020 to early 2021, Bitcoin saw institutions flocking in; everyone believed Bitcoin to be "digital gold", with such strong consensus that no one was willing to sell. Even if trading volume didn't explode, the price rose from $20,000 to $60,000, stable as a rock.
2. Increasing volume dropping, not a deep drop
The price is dropping sharply, but trading volume is surging; this is often a sign of "panic selling"—for instance, regulatory tightening or project failures cause retail investors to collectively cut losses. However, increased volume also means "someone is catching the fall": the brave believe the price is oversold, and bottom-fishing funds begin to enter.
In May 2021, when China strengthened regulation, Bitcoin dropped over $10,000 in one day, and trading volume surged. However, not long after, those optimistic about the long term began to buy, and the price quickly stabilized and rebounded.
3. Increasing volume rising, not a high rise
The price is surging, and trading volume is also increasing, but at this time, there is significant disagreement between buyers and sellers: some are chasing the price, while others feel it's too expensive and are selling quickly. In such "internal strife", prices are likely to show a "flash in the pan" at high levels and then adjust.
For example, Dogecoin in 2021: When Musk shouted a prompt, trading volume exploded, but after reaching a certain height, profit-takers began to sell off dramatically, and new funds couldn't sustain it, ultimately crashing down from the peak.
4. Decreasing volume dropping, not at the bottom
The price continues to fall, but trading volume is decreasing, indicating that everyone has given up—bears think it will fall further, and bulls dare not act, making the market seem like a "zombie". At this time, prices are likely to continue to fall until a "rescue signal" appears (like a technical breakthrough or favorable policy).
During the 2018 bear market, Bitcoin fell from $20,000 to $3,000, and trading volume shrank to a minimal level; everyone felt it was "over". It wasn't until 2019 when technology made progress and sentiment warmed up that the market slowly came back to life.
3. How do dealers use the volume-price relationship to "cut leeks"?
Dealers hold large funds and insider information and are best at using the volume-price relationship to "perform".
Accumulation Phase: Secretly buying, slowly accumulating chips with small orders, price slightly rises but trading volume is low, afraid of being noticed by retail investors.
Rally Phase: Conducting "wash trades" (simultaneously placing buy and sell orders) to create a false appearance of rising volume, then calling for retail investors to chase the price in groups or forums.
Distribution Phase: First, large orders slam the market down, causing a small price drop, then using small orders to pull back, creating the illusion of "stopping the fall". When retail investors see it's "stable", they jump in, and the dealer takes the opportunity to offload all the chips to retail investors, ultimately leading to a price crash.
4. How do retail investors use the volume-price relationship to "bottom fish and escape the top"?
Bottom Fishing: Wait for "Volume Decrease + Volume Increase"
Signal 1: The price has been falling for a long time, and trading volume shrinks to a "minimal level"; suddenly, a rebound in volume indicates new funds are entering, which may signal a bottom.
Signal 2: Combine technical indicators (like KDJ oversold, MACD golden cross) with increased volume for a higher success rate.
Signal 3: Observe blockchain addresses; if large holders are buying at the bottom, it may indicate the dealer is accumulating, so follow and buy.
Top Escaping: Focus on "Volume Increase + Stagnant Price"
Signal 1: The price rises to a high level, trading volume surges, but the price does not increase (or increases little), indicating significant disagreement between bulls and bears, which may signal a drop.
Signal 2: The price breaks below the upward trend line or moving average (like the 5-day line crossing the 20-day line); combined with shrinking volume, it's time to run.
Signal 3: The dealer starts to "wash trades" to create a false rise or frequently issues good news, which may indicate a selling signal; don't hesitate, sell!
5. The volume-price relationship is not a "universal key"; using it this way will avoid pitfalls.
The volume-price relationship is useful but also has its shortcomings:
Ineffective when the market is too crazy: For example, hacker attacks or sudden bans on trading by the government can cause the volume-price relationship to "malfunction". In 2022, when Celsius exploded, the market directly panicked and sold; who still looked at volume and price?
Dealers are too good at "acting": With loose regulation in the crypto market, dealers can easily use "wash trades" to create false volume, deceiving retail investors.
What to do?
Multi-dimensional Analysis: Look at volume-price + project fundamentals (technology, team) + macro policies together.
Risk Control: No matter how you analyze, you must set stop-loss and take-profit; don't gamble on the "last hand".
Don't Trust the "Absolute": The volume-price relationship is a "probability game", not "100% accurate"; staying calm is the most important.
The volume-price relationship is the "survival guide" of the crypto market, but don't treat it as a "bible". Learning more, practicing more, and summarizing more will help you survive and thrive in this "crazy casino".
I am Wenhua, a professional analyst and educator, a mentor and friend on your investment journey! As an analyst, the basic job is to help everyone make money. I solve confusion and trapped positions, speaking with strength. When you lose direction and don't know what to do, follow me, and Wenhua will guide you.
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