If you are a new trader looking to trade in the cryptocurrency market, you will have to familiarize yourself with all the factors that affect cryptocurrency trading. The good thing is that you can join any online broker’s trading platform and find enough training material to learn cryptocurrency trading before your hard earned cash is on the line in the financial market. It is a practical world where once you have lost your money, you have lost it. Finding the courage to get back on your feet and trade with confidence again when you are a new trader can be a tough call.
For that reason, you would want to know every factor that can affect a trade outcome. One of the most important factors that you should look at when you are trading is volume. It plays an important role in helping you enter profitable trades no matter which particular asset you are trading. In other words, you have to look at the volume of trading even if you are trading some other assets than cryptocurrencies. So, why do you have to look at volume when trading cryptocurrencies? Let’s find out here Neuercapital
The Connection of Volume and Cryptocurrency Trading
When you join an online platform for trading, the first thing you will notice on the dashboard of your trading platform is a chart. This chart tells you the current standing of the cryptocurrency in the market. It tells you the current price of the crypto asset and the journey of that price in the past few days. You can always define the timeframe for which you want to see the chart. As a result, you can see how a particular cryptocurrency has been performing in the past few days, weeks, months, etc. However, that’s all that you can find out by looking at the graph.
When you are about to enter the trade, you have to know more about the cryptocurrency in order to trade it with a profit. How do you do that? Well, you have to look at other factors. Just because the price of the cryptocurrency has gone up in the past two days does not mean it will keep climbing today as well. For that reason, basing your trading decision on this movement will not be wise. On the other hand, the volume of trading of the same cryptocurrency can tell you a lot. It can help you with a profitable trade by allowing you to predict the price movement in the right direction.
So, you might see on the chart the price of the cryptocurrency is going up. However, when you look at the volume of trading, you see that it is very minimal. You will have to compare the trading volume from the past days. If the price is going up but the trading volume is going down, you can predict that the price will also go down. The price might be telling you the face value of the currency, but the volume is telling you about the interest of the investors in that particular cryptocurrency. If the volume is low, it is a clear indication that investors and traders are losing interest in the cryptocurrency. As a result, the value of the cryptocurrency will come down.
On the other hand, if you see that the price of a cryptocurrency is going down, you will also have to consider the volume. If the price is going down but the volume is going up compared to the past days, you can predict the price to go up eventually. Despite the low price, you can tell by looking at the volume of trading that people are interested in trading this particular cryptocurrency. Since there is interest and inclination to buy this cryptocurrency in the market, it is soon going to shift the momentum.
Looking at the volume of trading also helps you find a solution to confusing analytical results. Keep in mind that you have two ways to analyze the assets in financial markets. Volume is a part of technical analysis. However, many traders prefer fundamental analysis before they initiate a trade. A look at the volume of trading can give these people a great idea of which position they should open when they trade.
For example, you might notice that a tech company’s new initiatives have given a great elevation to its share value in the market. You notice that the company is taking new initiatives and its share price is going up. Seems like a perfect time to buy this particular stock, right? Wrong! You will have to look beyond the price of the share and your fundamental analyses. You have to look at the volume of trading. If the increased price of the share has resulted in a very small increase in the volume of trading, you can’t really trust the new price.
The price has definitely gone up but it is in no way an indication that the share price will keep rising. The low volume of trade shows that the increased prices and new initiatives from the company have not been able to garner the desired interest of the traders. In that case, you will have to wait on your trade. You can wait to know if the trading volume increases. Or, you can trade with a prediction that the price will fall in the coming days. In that case, you will sell your shares of that company to buy them back later at a lower price.
Using Volume-based Indicators
Whether you are a new trader or an experienced one, you have to realize the importance of volume in trading. You cannot ignore volume at any point because the price of an asset tells you nothing more than what it is i.e. price. On the other hand, you have volume that tells you the inside story of an asset. You should join a platform on which you can use the many indicators that use volume as an indicator to predict patterns and changes in the financial markets. Make sure you choose the right broker to get the best service.