Understanding Cryptocurrency Trading Volume: A Guide for Better Trading

11. October, 2023

Understanding Cryptocurrency Trading Volume: A Guide for Better Trading

Are you looking to take your cryptocurrency trading to the next level? If you’re a trader, whether experienced or just starting, you’ve probably heard the term “trading volume” thrown around quite a bit. It’s a vital aspect of the crypto world that can greatly impact your success in the market. 

In this article, we’ll break down the concept of trading volume in the simplest terms, providing you with a comprehensive guide to help you make better trading decisions. So, let’s dive in and understand why trading volume is a crucial component of your crypto journey.

What is Cryptocurrency Trading Volume?

At its core, trading volume is the number of cryptocurrency coins or tokens traded on a specific exchange within a given time frame. It’s like the heartbeat of the crypto market, reflecting the level of activity, interest, and liquidity in a particular cryptocurrency. In simple terms, trading volume shows you how much buying and selling is happening in the market.

Pain Point: Understanding the importance of trading volume is crucial, as it can help you avoid ill-informed trading decisions. If you’re not paying attention to trading volume, you might miss out on significant market trends and opportunities.

Why is Trading Volume Important? 

Trading volume can serve as a window into the crypto market’s soul. Here’s why it’s essential:

  • Liquidity: High trading volume usually means greater liquidity, making it easier to buy or sell assets without significant price fluctuations.
  • Price Trends: Volume can reveal the strength of a price trend. High volume accompanying a price increase or decrease suggests a more sustainable move.
  • Market Sentiment: It offers insights into the collective sentiment of traders. Sudden spikes in volume might indicate breaking news or FOMO (fear of missing out).
  • Reducing Risk: Understanding volume can help you avoid thinly traded assets that can be more volatile and prone to manipulation.

Not paying attention to trading volume could lead to missed opportunities or unexpected losses. Imagine trading during a low-volume period and being unable to execute your orders efficiently.

How to Analyze Trading Volume

Analyzing trading volume effectively is a skill that can significantly boost your success in cryptocurrency trading.

Now that you understand why trading volume is crucial, let’s delve into the methods and techniques that will empower you to make informed trading decisions:

Volume Bars: Visualizing Activity

One of the most straightforward ways to gauge trading volume is by examining volume bars on cryptocurrency trading charts. These bars are typically positioned at the bottom of the chart and display the trading volume for specified time periods, such as 1 hour, 1 day, or 1 week. Understanding volume bars is akin to reading the pulse of the market.

How to Interpret Volume Bars:

  • Height Matters: Pay close attention to the height of the volume bars. The taller the bar, the higher the trading volume during that time period. A significant spike in volume often signals increased market activity and can indicate imminent price movements. Conversely, lower bars suggest a lack of trading interest, which may lead to more stable price levels.
  • Consistency and Patterns: Observe the consistency and patterns in volume bars. Is there a gradual increase or sudden spikes? Consistency in volume can indicate a trend, while irregular patterns might suggest that the market is unpredictable or undergoing a transition.
  • Volume Confirmation: Look for volume confirmation of price movements. If you see a substantial increase in trading volume accompanying a price rise, it lends credibility to the upward movement. Conversely, a drop in price on high volume may signal a trend reversal.

Moving Averages: Identifying Trends

Moving averages are a valuable tool for traders seeking to identify trends and irregularities in trading volume over time. By calculating the average volume over a specific period, you can create a moving average line on your chart.

How to Use Moving Averages:

  • Trend Identification: Moving averages smooth out fluctuations in trading volume, making it easier to identify trends. For example, a moving average that slopes upward may indicate an uptrend, while a downward slope suggests a downtrend. 
  • Spotting Irregularities: Moving averages can help you spot irregularities or anomalies in trading volume. Sudden spikes or drops that stand out from the moving average can signify unexpected market events or shifts in sentiment.
  • Determining Trading Signals: Combining moving averages with price analysis can provide valuable trading signals. For instance, if the price is rising while trading volume remains below the moving average, it may indicate an unsustainable trend.

Comparative Analysis: Insights from Peers

Comparative analysis involves comparing the trading volume of the cryptocurrency you’re interested in with similar coins or tokens. This approach can reveal unique opportunities and potential risks within the market.

How to Perform Comparative Analysis:

  • Select Comparable Assets: First, identify cryptocurrencies that are similar in nature or fall within the same category as the one you’re interested in. These assets should share some market characteristics with the one you’re analyzing.
  • Analyze Volume Differences: Compare the trading volume of your chosen cryptocurrency with those of its peers. If you notice a substantial discrepancy, it’s an indication that something unique is happening with that particular asset. 
  • Make Informed Decisions: The insights gained from comparative analysis can assist you in making more informed trading decisions. If a cryptocurrency has a higher trading volume than similar assets, it may present opportunities for short-term trades or investments, whereas lower volume might necessitate a more cautious approach.

When to Trade Based on Volume

Look for significant increases in volume when a cryptocurrency breaks out of a range or experiences a breakdown. This could indicate a trend reversal or continuation. High volume should also confirm the direction of the price movement. If prices are rising at low volume, it may not be a reliable trend.

Major news or events can lead to a spike in trading volume. Be cautious when trading during these times, as prices can be highly volatile.

Making sense of trading volume and using it for trading decisions might seem complex at first, but with practice, it becomes a valuable tool.


In the world of cryptocurrency trading, understanding trading volume is like having a map to navigate the market. By paying attention to this crucial indicator, you can enhance your trading skills and make more informed decisions.

It tells you how active and liquid a market is, offering valuable insights into potential price movements and trends. Don’t overlook this vital aspect of trading; instead, use it to your advantage.

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