Bybit Ambassadors
Published in

Bybit Ambassadors

Technical Analysis, Part 8 — Volume analysis

General

The volume represents the strength of the cryptocurrency. It is directly linked to the traders. The more it is traded, the greater the volume. A cryptocurrency is said to be “liquid” when it has a large volume.

The more volume a crypto has, the harder it is to manipulate its price. This is why some low caps are so difficult to trade, because a single person can have a significant effect on the volume and thus distort any technical interpretation. A cryptocurrency like Bitcoin, with a strong liquidity, is harder to manipulate, there is less wash trading.

It is one of the most important indicators in trading for a simple reason: other indicators are generally based on the relationship between price and volume. Which means that volume is fundamental when you start trading it needs to be taken into consideration.

Volume is a powerful prediction tool because it is supposed to move before the price. This is why they are interesting. Moreover, they act as a confirmation of your chartist figures.

The volume is represented by a histogram at the bottom of the chart and includes several information

  • The bars: The candle is green if the volume closing is higher than the previous day’s candle, otherwise it is red.
  • The moving average: The moving average, represented by a curve, is the average of the volume. The volume is considered to be strong when it exceeds this average.

How to trade with volume?

The volume can be interpreted in 3 different situations

  • The volume is increasing: When the volume increases, the current trend is expected to continue. The increase in volume reinforces the current trend because it indicates that buyers and sellers agree on this price.
BTC/USDT H1 Chart
  • The volume is declining: When the volume declines, we see that the consensus is no longer so easy and this indicates a weakening of the current trend.
BTC/USDT H1 Chart
  • Volume Peak: When we see an isolated volume spike for no apparent reason, it may be market instability due to panic sells or buys. The trend is likely to turn around after that.
BTC/USDT H4 Chart

To interpret the volume and place the trade, you can identify one of these 4 situations:

Obviously, you won’t based your whole strategy on volume. But it is an amazing way to confirm your trading idea.

On this example, we determine a key level (in green here) and observe the reaction of the price to its contact.cWe can see here that a high volume (above the moving average) is necessary to pass this level up or down.

BTC/USDT 1D Chart

Volume profile

In contrast to conventional volume, which is based on a time unit, profile volume is based on price levels. The volume profile therefore makes it possible to determine levels of price congestion and identify the key levels that have been processed in the past.

The green part corresponds to the quantity of cryptocurrency that has been sold at this price level, the red part corresponds to sales.

BTC/USDT H4 Chart

It should be noted that the profile volume adapts to the candles displayed on the screen. Thus, if you zoom out, the profile volume will change according to the new data on the screen.

The volume profile is therefore a powerful indicator to determine supports and resistances on your chart and thus determine the levels on which you will trade. Again, they should not be used on their own but act as confirmations of your analysis. The developing POC is the price level for the time period with the highest traded volume.

Conclusion

As we have seen, volume is a powerful indicator when we want to enter a trade. However, it should not be used alone, but it has an important confirming power. It is important to take volume into account to make sure you are going in the right direction.

To ensure that the volume is meaningful, use moving averages so that you know where the current volume is.For example, a key level approached with a high volume will be more likely to break

Don’t forget to join your local community on Bybit:

English (Global Group): https://t.me/BybitEnglish
French: https://t.me/BybitFrench
Hebrew: https://t.me/BybitHebrew
Indian: https://t.me/BybitIndian
Indonesian: https://t.me/BybitIndonesian
Japanese: https://t.me/BybitJapanese
Korean: https://t.me/BybitKorean
Russian: https://t.me/BybitRussian
Spanish: https://t.me/BybitSpanish
Turkish: https://t.me/BybitTurkish
Vietnamese: https://t.me/BybitVietnamese

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Charly

Charly

@Bybit_Official French ambassador Social miner with @TheDaoMaker for @NEMofficial, @2keyNetwork, @OpenPredict & @avalancheavax