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Monday, January 14, 2019

Volume Is Important For Strategies In Bitcoin, Etherium And Other Alt Coins?



Is it good to use volume as an indicator?

Using volume as an indicator is the part of trading strategies for most of the traders.

What is actually a volume?

There are 2 ways to describe volume. One type is for normal crypto exchanges such as Binance and another one is for leverage trading exchanges such as Bitmex. 

On normal crypto exchanges, volume represents a number of traded coins. If you buy 10 Ethereum coins, the volume will be 10. So, it is a number of bought or sold coins.

On the other side, volume on exchanges such as Bitmex where you are not buying a coin but buying or selling shares that represent the value of the coins. If you buy 1000 shares of Bitcoin on Bitmex thinking that the price will go up, the volume is going to be 1000.

Why should you consider using volume as an indicator?

Volume gives us very good insights into market sentiment. For the trend to continue, whether it is uptrend or downtrend, you need constant buyers/sellers to keep that trend alive and best source for this information is volume that will say how many market participants are actually buying/selling.

If a price is still in the trend, it is going up or down but volume is dropping giving us sign that the buying/selling activity is dropping, it can be very strong sign of potential trend change since there are not enough market participants that are interested in trend to continue. They think it is overvalued or undervalued and then do not see the reason to buy/sell.

On the other side, trend reversal traders see this as an opportunity for them to make money. If the market is not extra bullish/bearish because of some fundamental reasons, trend reversal has big chance to happen.

The Volume as an indicator can give you some hidden signs that are not visible just following price action.

But...

There are hundreds of exchanges in the crypto world and every exchange has its own volume that is different from all other exchanges. Which one to follow?

Use the biggest exchanges as a reference. If you are too skeptical, check out top3 exchanges and it will be more then enough.

If you are trading on normal exchanges, use Binance as a reference and for margin exchanges use Bitmex. Best for you is to use the volume of the exchange you are trading on especially for Margin Trading.

If someone is bullish, he will look for an exchange with big volume and make his analysis there to convince others that he is right. The same thing will happen if someone is bearish.

Do not do that. If you are bullish and price action and indicators you are using are showing that situation is not that bullish, maybe it is not that bullish. Do not be biased by some of your hopes. Follow what your trading system says. The worst thing is to be bullish or bearish without real reason and then to go in the market to try to find reasons for your bullishness/bearishness.

To conclude, volume has its value and that's why we think it is one of the indicators you should look for not for trading signals but just as a reference and potential warning sign. If there is no confluence between volume and price action, maybe it is time to recheck your previous analysis.

All in all, very useful indicator with a lot of value but do not use it to convince yourself that you are right. There is no space for egoists in the market. Leave your ego on the side!

Success for all Traders!



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