How are trading volumes useful in cryptocurrency analysis?
Trading volume is a helpful indicator when analyzing cryptocurrencies. It allows you to understand the market sentiment in general and the prospect of the asset’s price movement. Traders often use this tool to determine the potential for growth or decline.
Trading volumes are the number of contracts traded. There are 2 types of volumes – vertical and horizontal. On the chart, the first one is displayed regarding the time interval (the selected candle), and the second one is the number of contracts at a certain price. The horizontal volume is located in the TradingView analytical resource in the “forecasting tools” section called “horizontal volume profile”.
Vertical trading volumes (TradingView)
Horizontal trading volumes (TradingView)
The main disadvantage of this indicator is the absence of a common information source. Each exchange has different trading volumes, which leads to different indicators in the analysis of the chart.
It is more rational to work with volumes on charts of the most liquid exchanges, the list of which is available on the analytical site Coingecko. It does not matter exactly how many trades were executed – 10 or 100 thousand. Traders need to compare volumes for the last hour, a few hours, or a day to determine the reaction of buyers and sellers.
Rating of centralized crypto exchanges by trading volumes (Coingecko)
What vertical volumes are used for:
What horizontal volumes are used for:
Trading volume is a good indicator for understanding the price trend. But it is better to use it with other analysis methods to qualitatively determine the strong levels and build your trade on actual data.