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.
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.
What vertical volumes are used for:
Determining the veracity of a breakout. Support and resistance zones are filled with traders’ stop orders. Large volumes signal the break of a strong level. This means that all orders have been triggered and the zone has been passed;
Understanding the weakness of the movement. Growth at low volumes often indicates that sellers are waiting for a more interesting and attractive price. The same is true when the price of the asset is falling.
What horizontal volumes are used for:
When it is difficult to identify a strong level. If the price has reacted to far too different marks, it is advisable to extend the horizontal volume on the desired section of the chart. It will show exactly at what price traders have put their orders;
If a stop order needs to be put and the nearest zone is far away. Horizontal volume can give information about where a bounce is likely to occur, even if there are no levels on the chart.