Trading volume is the total number of cryptocurrencies traded across all platforms in a certain timeframe. When it comes to looking for trading volumes, most exchanges will showcase trading volumes that have been traded only on their platform, and if we want to check the whole market’s trading volumes, we need to visit special websites, such as Coinmarketcap. These trading volumes are displayed in two different formats. The most common way trading volumes are displayed is in USD, while the second option for checking trading volumes is checking how much cryptocurrencies have actually been traded. 

This is an important metric as it is connected to many parts of the crypto market and knowing trading volumes can give you insight into many other parts of the crypto market. Here are some of these indicators and metrics that trading volume is associated with.

Liquidity

Liquidity in the crypto market shows us how much of the demand is met with supply. So when liquidity is high, trading becomes much easier, as trades get executed instantly and there are very low or no slippages at all. This in return generates high trading volumes, as more people are trading since there are no challenges on the market, which in return stabilizes the price of cryptocurrencies and reduces volatility. 

Market Strength

Another important bit of information that we can receive from trading volumes is how strong the market is. The crypto market is highly volatile and prices jump up and down pretty frequently. Because of this, knowing market strength is important as it can tell us how likely it is for an asset to maintain a price change. When trading volumes are high and the price moves in a certain direction, it’s likely that this price change is strong and will be maintained for some time. But when trading volume is low, but the price shifts in one direction, it usually means that price change is weak, and it will soon reverse. Knowing this, we can then easily plan ahead for our upcoming trades.

Market Trends

Just like market strength, trading volumes can be used to calculate the strength of market trends and how likely it is for trends to continue. When price movement is followed by high trading volumes, it means that we have a strong trend that is being followed by a lot of traders. While if the price change is followed by low trading volume, it usually means that this is a weak trend and can be easily reversed. It is also easy to spot trend directions using trading volumes. When we see an increase in price and trading volumes are high, it means that a lot of people are buying and prices are expected to continue rising. On the other hand, if the price falls, and trading volumes are high, then it means that we have a strong downtrend and prices are expected to fall. 

Market Reversal

Another good market signal that trading volumes can provide is market reversals. When the price is moving in a certain direction, but trading volumes are lowering, it means that people are trading less and less. This will slow down the price movement and there is a good chance the market will reverse. For example, if we see that the price of Bitcoin is growing and heating highs, but subsequently trading volume is decreasing, it means there is less buying power. With less buying power, the price won’t be pushed high as it used to be and it might soon start dropping. 

Now that we know what trading volume is and how we can use it to our advantage, it’s time to learn how we can read trading volumes on charts. There are several different ways trading volumes are displayed on the charts, but the most common ones are volume bars. These trading volumes are displayed on histograms in the form of volume bars, and each bar is associated with a candlestick. What this means is that, whatever timeframe you are trading with, is the timeframe you receive for trading volumes as well. 

To better understand this, let’s look at the example below. In this example we are trading with the Bitcoin/USDT trading pair, using a 4-hour timeframe. Looking at the chart, below we can see the histogram and volume bars, each under a specific candlestick at the top. When we hover over each bar, we will be shown how many cryptocurrencies have been traded in that particular time frame.

Keep in mind that this example is based on the Binance trading terminal and the design and the way information is displayed will vary depending on the platform we use. But in general, most exchanges and trading platforms will have something similar and there should not be huge differences.