What does trading volume mean and why does it matter?
The best traders are the ones who develop their own trading strategies. To make successful trades and analyze the market, you would need to consider different types of market indicators. One of the key metrics is trading volume, as it helps us evaluate the potential of a cryptocurrency.
What is the trading volume in the crypto space?
Volume, or trading volume, is the total number of units traded in the market during a specific period. Usually, we measure volume in a 24-hour period. Volume measures the number of individual units of an asset, like crypto or stocks, that exchanged hands during that period.
Volume can be measured in two ways - by focusing on a specific exchange or by considering the aggregated data from all the exchanges. For instance, if person A buys 50 BTC at $10,000 each from person B on the crypto exchange platform Binance, the volume for that trade is $500, 000. In this case, the trading volume is particular to only Binance.
How does volume help in trading?
A volume indicator can be the best tool to evaluate the potential of an emerging digital currency. It helps us to determine the strength of a given trend. If the price movement happens along with high trading volume, the trend is assumed to be strong and valid. A combination of price movement but low trading volume will result in a weak trend.
If you want to evaluate the sustainability of a cryptocurrency, its trading volume is typically one of the best indicators. If a new project is creating a lot of hype in the market but its trading volume is low, it signifies that investors are not confident in the project.
High trading volume will result in greater liquidity and stability of the cryptocurrency. The volume for the same crypto in different exchanges will differ based on several factors such as the geographical focus of that platform. However, it is always recommended to choose an exchange with a high trading volume.
On the other hand, while choosing a cryptocurrency, it is important to consider its trading volume on a wide number of exchanges. If a coin has a high trading volume over a sustainable period, it indicates that the coin is popular and we can expect an uptrend in the long term, even if there are a few price drops.
Trading volume helps you determine if your portfolio is healthy by assessing the sustainability of the coins you have invested in.