Knowing the trading volume definition is essential for everyone involved in crypto trading. Learn the basics about this metric by checking out the information below!
What Is Volume?
In the crypto context, the term “volume” or “trading volume” refers to the number of units of a specific asset traded within a given timeframe, providing an indication of market activity.
What You Need To Know About Volume
Trading volume can be denominated in any type of asset, including stocks, bonds, fiat money, and crypto. For instance, consider a transaction where a user sells 10 ETH for $2,000 each. In this case, it would be equally valid to express the transaction’s volume as $20,000 or 10 ETH.
Volume is an important indicator of liquidity. The higher the volume, the more liquid an asset is considered to be. This means that it is easier to buy and sell large amounts of a given cryptocurrency without affecting its market price.
What’s more, traders often look at volume to gain insights into the strength of market trends. When high trading volume is coupled with significant price volatility, it is considered a sign of a credible price movement. On the other hand, if a price change is accompanied by low volume, it may indicate a lack of support for the underlying trend.
Typically, a rising market should be characterized by increasing trading volume, as it means that the growing buyer demand is driving prices upward. In contrast, a leap in volume during a downward trend may signal growing selling pressure.
Note that substantial spikes in volume often accompany such market events as reversals, exhaustion moves, and sudden changes in price direction, as they tend to attract high levels of both buying and selling activity.
Remember that volume can be manipulated. For instance, some exchanges may inflate their volume to appear more popular and attract more traders, so it’s crucial to use multiple sources as a reference to get an accurate picture of the current state of affairs on the market.
