Analyze This: Why Monitor the Volume of Trading?

In a recent review, we talked about one of the most powerful and accurate instruments of technical analysis, the indicator of trading volume. This indicator can be adjusted on all platforms used by analysts, as this is one of the fundamental indicators that traders are oriented by when they try to predict the movement of the price of crypto assets.

The essence of any market is the interaction of supply and demand. It is these indicators that determine how much a particular crypto asset will cost. Imagine that interest in Bitcoin has plummeted, and no one wants to buy it, even as a collectible. How much will something cost that nobody wants to buy? That’s right, nothing at all. The trading volume indicator reflects the number of transactions with respect to the cryptocurrency for a certain time interval, that is, it actually fixes the stability of interest in the coin, its rise or decline.

Notice how the columns of the trading volume indicator “play” with the candles on the price chart above. As soon as the Bitcoin rate approaches the support line (and even breaks it) and hints at further takeoff, interest in its purchase increases, the volume of trades increases dramatically, which automatically entails an increase in the cost of the crypto. It is important to understand that price does not dictate rules of volume behavior, but, on the contrary, the value of a crypto asset is a derivative of the volume of the market. Volume always goes ahead. First, the volume indicators change, and then the price reacts.

Take an example of an uptrend when interest in an asset from buyers suddenly falls (traders filled portfolios, switched to other currencies, or just sat down to wait for their X’s). First of all, the schedule will record a decline in trading volume, and only as a consequence, there may be a change in the price trend and possible reversal of the trend. By the way, a decrease in the volume of trading does not always entail a reversal of the trend. Bulls earn their salt for a reason, as the measures they take to support the rates of cryptocurrencies can return interest and volume indicators to the former, and even to a higher level.

As a confirmatory indicator, the volume of trades can be used in the analysis of price models. By interpreting this or that price model, the trader expects that its completion will be accompanied by an increase in the volume.

The volume indicator is also important in assessing the stability of support and resistance lines. The more stable the level of support, the higher the volume of trading at that moment. If, however, when the lower price line was formed, the trading volume was not very prominent, it means that this line will not be difficult to break.

It is more interesting to consider the volume indicator not only in the vertical section of the graph (with respect to the candle), but also in the horizontal one. After observing this indicator, you will notice how easily, by focusing on it, you can determine real, interesting levels of support and resistance to the market, and also draw conclusions about the stability of the current price trend. With an uptrend, as the prices increase, the volume will increase, falling in intermediate slumps. Master the tool of technical analysis of trading volume and you will have many advantages in trading.

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