What is Volume?
Volume refers to the total number of shares or contracts exchanged during a given trading period. The volume of the asset is a measure of the market’s activity and liquidity during a set trading period. Higher trading volumes are considered more positive than lower trading volumes because they mean more liquidity and better order execution.
Example of Volume
Looking at the daily time frame of BTC (Bitcoin) we can see on multiple occasions that while the price of the asset is rising, the volume is increasing. This indicates a true uptrend and that the current trend is going to continue rising higher. Once the asset peaks out, as the price is trading lower and lower, the volume also increases. Just like when the asset goes up, the volume will increase as it’s going down as a sign of a true reversal.
How to Trade based off Volume
Trading based off Volume is a little bit tricky, but with practice it can be one of your most useful assets. There are two trades that you can make playing the volume indicator, increase or decrease in volume.
An increase of volume while the asset is going up means that the pump isn’t fake and there is real liquidity hitting the asset. This indicates very bullish momentum as well as the current uptrend is most likely going to continue.
A declining volume is the exact opposite, while the asset is going down means that the dump isn’t fake and there is real liquidity hitting the asset.