What is Volume?

Volume is the number of shares in a stock, bond, option, or futures contract for a specified period of time (minutes, hours, days, months, etc.).

An increase in volume means an increase in the total trading volume of security at a market price. Conversely, reducing volume means reducing the trading volume of security.

Volume reflects the strength of a stock, an index, generally a price in the market. The volume also tells you the liquidity of a market or even the quality of a trend (strengthening or weakening). Be very careful about the definition of volume, because signals about volume up or down only tell us if the market is interested in a market price (not a confirmation that the market will rise future prices).

Volume tells Trader what information about the market?

  • The volume will tell you the following information: An increase in volume means that the market has an interest in that price relative to other market prices. And this is also understood in both terms of buying volume and selling volume (many people prefer to buy at that price or prefer to sell at that price).
  • A high volume market also means that the market is actively traded and with high liquidity.
  • High volume is also characteristic of a new trend, such as when the price has just broken through a sideways period. Or it is possible that at a time when the market is about to bottom out, the selling volume spikes and shows that investors are panicking and selling off their positions.
  • The low volume shows an unstable market, poor liquidity, and lack of confidence in investors when trading at that price. It could also indicate a sideways market.
  • Volume increases are signals that the market is about to have a new breakout, but can also create a top or bottom. Either way, the increase in volume indicates that a new spike is imminent.
  • Because it reflects very well market sentiment, the volume is often used in conjunction with trend analysis, analysis of market price behavior.

How will the relationship between volume and price help you understand market trends?

Traders do not use volume alone, the most common is how to use volume in conjunction with price movements to understand trends.

You can check out the summary below to understand this relationship:

Using this table is very simple when you see the market is trending up, you look at the market volume and see if the volume is up or down. If the volume increases, the trend is strong and we have the right to expect the market to continue moving in the old trend. Conversely, a downtrend with a strong increase in volume works in a similar way.

There is a case when the price increases and the volume decreases or the price decreases and the volume increases, the trend has less confidence.

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