The Bitcoin trading volume is a crucial indicator for both cryptocurrency investors and traders.
According to a CoinDesk Markets survey, trading volume was ranked as the top indicator traders “couldn’t live without,” scoring 38% among all poll respondents.
Currently, the 24-hour BTC trading volume is standing at nearly $73 billion, which is up by 8% since the last day.
But what is the Bitcoin trading volume, what does it tell us about the market, and how does it impact crypto trading strategies Let’s explore the answers to the above questions together in this article!
Bitcoin Trading Volume Explained
The Bitcoin trading volume measures how much BTC has been traded on cryptocurrency exchanges in a certain period of time (the most common timeframe is 24 hours).
For Bitcoin derivatives trading, the volume provides data about the number of futures or options contracts changing hands between buyers and sellers.
When buyers and sellers reach an agreement at a certain price for a trading pair (e.g., BTC/USD), the exchange facilitating the trade records the transaction and uses that data to calculate the trading volume for the digital asset.
For example, suppose Alice sells 1 BTC to Bob at $60,000. In that case, the facilitating exchange records a volume of either $60,000 or 1 BTC for the BTC/USD trading pair based on the currency the service uses for denominating it.
How Does the Bitcoin Trading Volume Impact Crypto Trading Strategies?
Whether you are day trading crypto or holding digital assets for the long-term, you can use the Bitcoin trading volume to gather valuable insights about the market.
For that reason, the Bitcoin trading volume has an impact on crypto trading strategies and the financial decisions of users.
Traders can use volumes to discover the following crypto trading signals:
- Confirm trends: During a bull market, a high trading volume with great enthusiasm from buyers is crucial to keep pushing prices upwards. For that reason, it’s usually a bullish signal when both the volume and the price are increasing. On the other hand, when a digital asset’s price is surging, but its trading volume is decreasing, it is a warning sign of an upcoming potential reversal.
- Exhaustion moves: Monitoring the trading volume is also an excellent way to identify exhaustion moves. Featuring a sharp move into any direction as well as a significant volume growth, an exhaustion move can indicate a trend’s potential end.
- Price reversals: After excessive price movements in either direction, a significantly high volume paired with minor changes in the price can indicate that a reversal is imminent, in which the asset’s value will move in the opposite direction.
- Dead projects: While there are over 9,100 cryptocurrencies present on the market, not all of them have active projects behind them. Monitoring the current and historical trading volume of a cryptocurrency is an excellent way to limit your risks by filtering out dead coins with very low daily volumes.
When investing for the long term or day trading crypto, incorporating the Bitcoin trading volume in your strategy helps you discover crucial market trends and gather signals that support you to make the right decisions.
For that reason, it’s essential to adjust your crypto trading strategy to include the Bitcoin trading volume as part of your fundamental and technical analysis.
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