Crypto trading volume is one of the crucial indicators you need to track when discussing the crypto trading market. 

The cryptocurrency market is well known for its rich nature. There are thousands of terms connected to it related to the different currencies, platforms, technology used, and finance. If you start trading or tracking, navigating through all these new terms may need to be clarified. 

In our article today, we will discuss what Crypto Trading volume is and why it is important. 

What is Crypto Volume? 

Volume refers to the total number of times a cryptocurrency is traded in a specific time range. The statistical information is presented in the form of bars or lines in a price chart. The chart could contain various information like the trading cost but also, what was the highest or the lowest price on which the asset was traded for the specific period. 

There are different types of volume, you can find more about them below: 

• DApp volume 

This measurement calculates the traded total assets within a particular decentralized finance application. The measurement is very similar to the trading volume where the decentralized exchanges are technically DApps. From all types of volume, trading volume is a favorite metric of cryptocurrency investors. 

• Exchange volume

The exchange volume shows the investors the number of transactions that happen through a particular Crypto exchange. This metric monitors the trades with all digital currencies and can show information for centralized or decentralized exchanges. 

• On-chain volume

This metric tracks the trades made on a blockchain. The coins could be sent from one wallet to another using Decentralized Applications or sending the coins to a third-party wallet. 

Also, there are common volume indicators that help investors to analyze the information visible within the charts. The indicators are: 

• Momentum

The momentum is the indicator that shows the increasing volume of buying that will push the cost of cryptocurrency higher. But for the trend to continue its rise, the volume must be maintained. 

Rising prices on declining volume may indicate declining momentum and potential reversal. 

• Spikes & Exhaustion

Through spikes in volume can be associated with new momentum in either direction.  Spikes could also signal the tail end of the move in what is known as Exhaustion. A large spike in the moves might indicate that buying is happening in a move of a peak. The Exhaustion from its side indicates the end of the move. 

• On Balance Volume

This is a simple indicator that measures the changes in the volume that correlates with the price. 

• Money Flow Index

The Money Flow Index uses volume to indicate the overbought or oversold conditions. The indicator measures the market is getting overheated. 

These indicators are just examples of a few options that traders have to track and analyze market behavior. The indicators illustrated a few of the biggest challenges the traders are facing and are also commonly used in technical analysis. 

Trading volume’s key characteristics and features

• Trading volume measures liquidity 

The liquidity of the cryptocurrency shows how easily the asset can be exchanged at its current price. In general, a steadily higher volume shows stable liquidity resulting in lower price fluctuations. As a result, high-volume cryptos are selling more frequently and swiftly. 

• Trading volume determines market trends

The impact of the trading volume is high and can determine the behavior of the buyers and traders. A strong trade is usually indicated by the higher volume in a price fluctuation of the assets. On the other hand, the weak trends might be recognized by the lower volume in a price fluctuation. Additionally, the trading volume can reveal the buyer’s interest in a particular asset. 

• Trading volume tracks Crypto’s trends reversal

The trading volume can help you to recognize the reversal of the trend. If there is a drop in the trading volume and the price, it may indicate a trend reversal.

• Trading volume validates the straight of the Crypto market

Examining the trading volume is the best way to validate the Crypto market strengths. If there is a change in the trading volume along with the price change, it can help you to recognize if the trend is strong or weak. 

• Trading volume allows you to measure the accumulation in the market

The accumulation trends in the crypto market are important indicators for analysis. The trend is showing that high-net-worth investors are purchasing the asset. 

Pros of volume-based Crypto strategy

The volume is an indicator that allows traders to evaluate the price movement. Usually, technical analysis relies on historical data to forecast future trends. Analyzed in real time, the trading volume does not require previous price information. 

Volume is a straightforward indicator, the numerical value does not need to be charted or visualized for the investors to interpret. 

Cons of volume-based Crypto strategy

To make an informed investment it is important to use multiple sources of information. Also, relying on the volume as a trading option might be a mistake. Wash trading can affect the volume accuracy as a trading signal. During wash trading, the investor places 2 orders for the same asset to buy and sell it for the same price. The asset does not really change ownership but there is a wrong impression of a high trading volume. 

Conclusion

Trading volume is a metric that is important for asserting the straightness and potential of a particular Crypto asset. It can help you to analyze the liquidity, market trends, trends reversal, market strength, and accumulation. 

CryptoArbi.com is a platform for triangular crypto arbitrage. We can help you make the most of every opportunity. All you need to do is choose the right subscription plan, and we will do the work for you.