Lesson 5 of 6 · 7 min

Volume

Volume is the quantity traded in one period, usually shown as a bar under the candle. The price tells you what happened, and volume tells you how many participants took part. A move on large volume is not necessarily “real”, but it shows that more money stood behind it.

Always compare with the average

An absolute number says little on its own. Compare it with an average, say of the last 20 candles, and it is good to compare with the same time of day, because crypto has quieter and more active hours.

Three common readings

• Confirmation: a rise on rising volume and pullbacks on weak volume are considered a healthy picture.
• Weakening: a new high on shrinking volume means fewer and fewer participants are pushing the price. That is a warning, not a sell signal.
• Climax: a sharp fall on extremely large volume sometimes marks mass exits (capitulation). It is often recognised only afterwards, and the fall may also continue.

Limits of crypto data

On stock exchanges trading goes through regulated venues, so total volume is relatively clear. In crypto each exchange shows only its own volume. Even the sum on aggregators is not fully reliable, because some venues have recorded fake trades with oneself (wash trading). So for monitoring, choose a liquid venue and compare it only with itself over time.

Watch the unit too. Volume can be in the coin or in the quote currency. If 1,000 units traded at 1 USDT, that is a turnover of 1,000 USDT. If the same number traded at 10 USDT, it is 10,000 USDT. When the price has risen strongly, a comparison in coins will look as if interest is falling, even though more money is at play.

Volume on the derivatives market and on the spot market is also not the same. A large part of crypto trading takes place through leveraged contracts, where liquidations can create volume spikes that do not reflect conscious buying decisions.

Exercise: on one liquid pair find five breakouts on the hourly chart, write down the ratio of volume to its average and what happened over the next 12 hours. Five examples prove nothing, but you will get used to calculating instead of judging by eye.