Lesson 8

Yibo Crypto Host shares valuable knowledge, keep it for future reference

In cryptocurrency trading (like Bitcoin, Ethereum), how to use “trading volume” (simply put, how much of this coin is bought and sold within a certain period), and how it can help us judge market trends and avoid pitfalls.

First, understand the basics of trading volume: it’s not just a number, it reveals whether the market is active, whether people are buying into it (confirming price trends), whether buying and selling can proceed smoothly (liquidity), and it also reflects market sentiment (for example, sudden volume spikes could indicate panic selling or frantic buying). Different coins have different trading volumes; for instance, Bitcoin’s volume exceeds that of all other major coins combined. Some coins may have high market cap but very low trading volume, so be cautious when buying. Additionally, trading volume is categorized into spot and derivatives (like futures), and data needs to be cleaned before use.

Next is the core “volume-price relationship”: when prices rise, trading volume usually increases, indicating a reliable upward move with many buyers; if prices rise but volume doesn’t, it might be a top (divergence). Conversely, when prices fall and volume increases, it suggests many sellers and the downtrend may continue; if prices fall but volume decreases, it could be nearing a bottom (bottom divergence). Also, when prices break through key levels, volume should increase to confirm the breakout; otherwise, it might be a false move.

Now, the practical uses of trading volume: first, trend analysis—rising prices with increasing volume indicate strong momentum; sideways movement with shrinking volume suggests market hesitation. Second, confirming breakouts—when a coin breaks a key price level, volume should be significantly higher than usual to confirm the move; otherwise, it might quickly reverse. Third, identifying tops and bottoms—after a long rise, a sudden surge in volume could signal a top; after a long decline, a spike in volume might indicate a bottom.

Advanced tools include indicators like OBV (On-Balance Volume), which combines price movements with volume to clarify whether funds are flowing in or out; and VWAP (Volume Weighted Average Price), used by institutions and retail traders alike to judge optimal buy/sell points. Additionally, blockchain data (such as large transfers and exchange inflows/outflows) can verify whether volume data is genuine, helping to avoid fake signals.

Finally, how to avoid pitfalls related to trading volume: some platforms may fake volume (for example, by self-trading to inflate numbers). We can compare data across different platforms or check real blockchain transfer records to identify authenticity. Cross-market interference (like different trading activity levels across time zones or arbitrage activities causing volume spikes) requires us to distinguish between real demand and false signals. Also, during extreme market conditions (like sharp price surges or drops), volume data may be unreliable; in such cases, use other indicators for confirmation or pause trading to manage risk.