1. What is the Volume?
Volume is probably the best indicator for you to understand the popularity of a cryptocurrency. Because? The volume corresponds to the value of all purchases and sales made during a given period of time, in one or more exchanges. That is: The volume will be higher the more transactions are made, thus showing the general interest in a particular cryptocurrency.
Imagine that in the last 24 hours there hadn't been a single Bitcoin exchange. In this case the volume would be zero. If one Bitcoin had changed hands twice, then the volume would be equivalent to the value of two Bitcoins.
The popularity of major cryptocurrencies makes it impossible to have low or zero daily volumes. Due to the thousands of exchanges made every day, it is natural for the volume to exceed several billion dollars.
To help understand this logic, it may be interesting to look at a less popular cryptocurrency and see the concept applied on a much smaller scale. If a currency is barely exchanged during the day, if it has a low value, or both, then the volume in Dollars or Reais will be low, like that of the cryptocurrency above.
Low volumes make cryptocurrencies more vulnerable to wide price changes. This is especially important when choosing the cryptocurrencies in which to invest.
2. Volume: A Good Technical Indicator?
As it allows you to compare minute by minute transactions for each cryptocurrency, volume becomes an essential indicator for traders when they perform technical analysis, allowing them to study and anticipate certain price movements.
For example: If the increase in the price of a cryptocurrency is supported by a strong volume, it could mean that many people are transacting or that someone - a whale - is exchanging large amounts of that currency, and it is not strange that its value continues to rise; On the other hand, if the volume does not follow the upward movement, then the price trajectory may be unsustainable, since there is little support for the movement. Summing up: In addition to making it possible to understand interest in a particular cryptocurrency, volume can be seen as a fundamental tool for understanding investor acceptance in relation to certain price movements or the popularity of this market by country.
3. OBV indicator - On Balance Volume
The analysis of changes in volume to try to predict trends is the basis of the OBV (On-Balance Volume) indicator, developed in 1962 by Joseph Granville, who believed that volume was the great force that guided the markets. OBV is an indicator that continuously adds up the volume of days when there are positive variations and subtracts the volume of days when the variations are negative.
The formula for calculating it is as follows: If today's closing is higher than yesterday's, then: OBV = Yesterday's OBV + Today's volume If today's volume is lower than yesterday's, then: OBV = Yesterday's OBV - Today's volume If today's closing equals yesterday's, then: OBV = yesterday's OBV In practice, we speak of a series in which the volumes recorded on the days under analysis are continuously added or subtracted. To understand better, it may be good to look at the table below, which illustrates a concrete application of OBV: The good news is that many trading and / or analysis platforms already include this popular indicator, so you won't have to do all that work whenever you want to see the OBV line. In any case, since the data analysis will always be on your side, you should keep the following in mind to incorporate this indicator in your buying and selling decisions: If the price goes up and the OBV goes up = Confirmation of upward trend If the price goes down and the OBV goes down = Confirmation of downtrend If the price goes down and OBV goes up = Possible reversal of the downtrend If the price goes up and the OBV goes down = Possible reversal of the upward trend To better understand this behavior, see some examples:
In this second case, the upward trajectory of ETH was not followed by OBV, thus there was a divergent behavior. As the price rose and the OBV showed signs of falling, there was a reversal of the upward trend. Being aware of the volume is very important. It is not surprising the results of the survey carried out by CoinDesk among its users, about the most useful indicator in cryptocurrency trading:
