Size Matters: Volume and Cryptocurrency Spikes
As mentioned in a previous post, with a lack of traditional “fundamentals” in the cryptoassets markets, technical analysis has become essential in any investors toolkit for evaluating when and where to buy and sell said assets. Today, we’ll cover volume and how it relates to price movement.
In traditional capital markets, liquidity tends to be directly correlated with the “health” an asset. For example, Microsoft’s stock trades tens of millions of shares a day and the spread (the delta between the bid and the ask or what someone is willing to buy or sell Microsoft stock for on the stock exchange) is very tight, typically $0.01. Volume and liquidity help reduce the overall price volatility in the movement of Microsoft’s stock, in either direction, up or down.
In cryptoassets, bitcoin and ether tend to be the most liquid and have, relatively, lower daily price volatility than a number of altcoins and subsequently, bitcoin and ether have the most volume on pretty much any exchange.
Altcoins, however, are relatively illiquid, meaning, the spreads between what people will buy for and sell for are wide and the price swings can be intense for if someone intends to buy a large amount or sell a large amount, the lack of liquidity means the price movement can be sharp and fast.
CryptDexBot is a free, Telegram bot that notifies you in real-time of anomalies for specific assets’ prices helping forecast future price movements. Today, it caught a huge move in VIA-BTC. But how did it know? The answer is simple: Volume.
CryptDexBot posted at 00:33 Pacific Standard Time that VIA-BTC was experiencing a big spike in volume, to the upside. Here’s a chart of where it was then:
You can clearly see there was an anomaly in the amount of volume that was taking place over that 5-minute interval. Shortly thereafter, the price moved up 19.5%. That’s some serious price volatility (and profit if you bought on the initial spike).
But it didn’t stop there.
We now see the follow through in volume and even a massive spike of nearly 30,000% higher average volume at 00:55 PST. This is confirmation of a bigger move as someone (or entity) is buying with serious size.
The 5-minute interval can be a good indicator of short term movement, but the daily average volume spike is an even better indicator of a more intermediate term move.
An hour later, we can see the daily average volume continuing to rise further confirming the bullish move.
Again, an hour later we still see a rise in daily volume.
By 7:19 AM PST, VIA-BTC is moving on serious volume, more than triple its daily average volume at this time. Note, the price is now nearly 82% higher from the initial spike at 00:33 PST.
This is a GREAT time to sell your position if you haven’t already (I did). Here’s why:
You can see over the course of the next hour we are approaching nearly 10x our daily average volume, but the price has dropped. Time to sell if you haven’t already as this short term move has likely lost steam.
Here’s the chart in all its glory:
To recap, liquidity, or illiquidity in the case of altcoins, is a great indicator for short term price movement. When an opportunity arises to catch a move due to a volume spike, you should consider taking it, especially when you have multiple confirmations over time. This improves your chance at success.
You can get these types of signals in real-time for free at CryptDexBot.
And feel free to follow more cryptoasset trading discussion over at JoesCrypt.
