What Do You Understand from the Volume of a Cryptocurrency?
When you start your trading career, you have to familiarize yourself with all the important aspects that affect the price of an asset. Of course, you have to pick a financial market first, and then the asset that you want to invest your money in. After that, you have to look at a lot of factors to make sure that your investment goes in the right direction. When it comes to cryptocurrencies, you have to look at just about the same things you look at when you are trading any other traditional asset such as stocks, forex currency pairs, etc. However, if you are a new trader in the world of cryptocurrency trading, you need to understand the concept in further details. Let’s do that, Neuercapital is here to explain you.
The Meaning of Volume in the Cryptocurrency Market
It is up to you how you see the volume of the cryptocurrency market. You can look at the volume of a particular cryptocurrency or the entire cryptocurrency market. However, when you invest in the financial markets, you usually have to pick on asset and see its volume. So, volume is the total size of the trade of a particular asset. It takes into account every unit of that particular cryptocurrency being traded on exchanges and in the market. Here, every unit means every unit. You will not be counting just the number of crypto coins being sold, but the ones being bought will also be counted.
In short, when you look at the buying and selling of a particular cryptocurrency, you call it the volume. Now, an important aspect of volume that you have to understand is the timeframe. You can’t decide the volume of trading of a cryptocurrency unless you decide a timeframe for the volume. So, you can decide to look at the volume of a cryptocurrency in the past 24 hours. If you are looking at the volume of bitcoin in the past 24 hours, you want to know how many bitcoins have been sold and bought on all bitcoin exchanges in the past 24 hours.
There is no fixed value here. Depending on how you want to invest in the market and what approach you want to take, you can decide the number of hours for which you want to analyze the volume of trading.
In short, when you look at the buying and selling of a particular cryptocurrency, you call it the volume.
Why the Volume of Trading Matters
This is one of the most important questions that need to be answered before you jump in cryptocurrency trading. You can’t look at the volume of trading purposelessly. There is always a reason behind looking at the volume of a cryptocurrency or any other asset for that matter. What you are actually trying to see is the shift or expected shift in the market. You want to know if the cryptocurrency you are looking at is trading stably or not. If you don’t know, the volume of trading is one of the key aspects that you have to consider when doing a technical analysis of an asset.
Why do you have to look at the volume? Why does it matter when you can already see the price of the crypto asset that is currently going on in the market? Well, the most important thing is that the volume of trading tells you much more about an asset than price can ever tell. You might see the price of an asset rising in the past few hours. Looking at that trend, you will have the urge to buy the asset so you can trade it later for even more increased price. However, you can completely wrong with that presumption. What you never looked at what the volume of trading of that asset. The price might be rising but how many people trading the asset.
More people means the cryptocurrency is famous, reliable, and trustable. However, if the price is increasing without any increase in the volume of trading, it shows that the price of the asset will go down fast. So, the volume of trading tells you a lot about an asset, which is more than what other aspects of trading tell you.
How to Look at the Volume of Trading
Of course, now that you know what the volume of trading is, you also have to know how to look at it. You can’t just see a number on your screen and decide that you want to buy or sell a particular asset. There are many ways to look at the volume of trading of a particular asset.
The first thing that you have to do is to look at the past performance of the asset that you are considering trading. Again, the cryptocurrency exchange or broker you are dealing with will help you with that. Online cryptocurrency exchanges have the price charts that are recording the value of cryptocurrency assets. They have been calculating crypto asset values since their beginning. For that reason, you can use their online charts and tools to find out the value of a particular cryptocurrency asset at a particular point in time.
Once you know the value of the asset in the past, you have to look at the visible patterns and base your trades on that. If you see that a particular cryptocurrency asset is trading at a high price and high volume, you will have to see its value a few weeks prior. After that, you can look at the price of that asset in the past several months. Now, if you notice that this particular cryptocurrency always moves like this i.e. it trades at a high volume and at the price that you are seeing on your live chart, you will take that as a “no” signal for trading.
What it means is that you have to keep away from trading that crypto coin. By looking at the price chart for several months in the past, you can know when a particular asset is trading at abnormal values. If the current value of the asset is no different from what you see in the past, then there is no reason to trade the asset. It is only doing what it normally does.
However, if the price of the crypto asset seems stable but you see a sharp increase in its volume, you can somewhat sure that the price of the crypto coin is about to go up.
You should familiarize yourself with the concept of cryptocurrency trading volume and its importance before you jump in to this market. Do not make the mistake that many beginning traders make i.e. they look at the rising or declining price and try to predict the asset’s value from that.