Volume analysis

Volume analysis

Contents of this article:

For profitable trading on the exchange, traders analyze a number of parameters, and one of them is trading volume. It is necessary to study the method of volume analysis in trading in order to reduce risks and increase the number of successful transactions. What is volume, and how it is analyzed, we will describe further.

Importance of volume analysis in trading

Trading volume is the number of transactions made by traders in a certain time. The volume shown on the chart helps to understand how strong the interest of market players in a particular asset is. In the cryptocurrency market, analysts use data on the volume of orders queued for execution, as well as on the volume of already executed orders. To get the most complete picture, a trader should pay attention to the second parameter.

Do I need to analyze the volume of the order book?

Analyzing the order book, a trader sees orders that are in line for execution. The volume of the glass is constantly changing, the dynamics is observed due to constant price changes, as traders can place orders at one price, then at another, and also due to changes in market participants, one comes, others leave. Therefore, the volume of the glass can change dramatically.

Traders, analyzing the volume of the order book, do not see the full picture, since most of the orders are hidden. Today it is possible to mask part of the orders using iceberg orders. This feature is especially popular among large players with large capital. Iceberg orders allow you to hide large transactions so as not to provoke a collapse in the rate and not cause sharp price fluctuations. For this reason, the analysis of the volume of the order book can be a waste of time, because its real volume is difficult to assess due to the dynamics and hidden deals.

Executed volume

A trader should focus his energy on studying the volume of executed transactions – this is reliable data that already allows you to assess the situation. The volume of executed orders is distributed by time (Volume) and price (Volume Profile).

The first indicator, which evaluates the volume for a certain period of time, shows how many orders were executed during the specified period of time. The second indicator, the price indicator, shows at what rate this volume of orders is executed, more precisely, at what price range, since traders set different rates. Volume by order execution time allows you to determine the time interval with the highest trading activity. And for the price – the price range with the highest activity.

Beginners studying analysis may stumble upon materials on cluster analysis of volumes in trading . Clusters in the financial market are horizontal blocks with data on trading volume at a specific rate. Groups of clusters form charts, where each block corresponds to a certain course. This analysis method cannot be called popular among traders, so many standard terminals do not have tools for displaying prices in the form of clusters.

Why use volume in trading?

Volume analysis should be carried out in order to determine active trading areas, and not to predict the future price, since it does not provide data to determine the further movement of the course. A high trading volume indicates a high interest of traders in transactions with a particular asset. This data is used in many filters to determine the most popular trading instrument per hour, day or week.

Volume data also allows you to understand how liquid the asset is. High liquidity guarantees the ability to quickly sell the asset. In trading, volume is a good indicator of a trend reversal or continuation. If the volume gradually increases, do not rush to exit the transaction. And moving the price up or down with a steady increase in trading volume confirms the continuation of the trend.

Learning to analyze price and volume in trading is not easy, especially for beginners. Therefore, Crypto Crew specialists have created an effective trading course, where you will learn all about common methods of analysis. Also join the closed Crypto Crew community to get the most interesting materials and news from the crypto industry!