What is Trading Volume?
Here's the deal: trading volume is the total amount of cryptocurrency that's been bought and sold during a specific time period. It's like a popularity meter - the higher the volume, the more action is happening.
Think of it this way: price tells you what people are willing to pay, but volume tells you how many people are actually trading. Price without volume is like knowing a restaurant's prices but not knowing if anyone is eating there.
In plain English: Trading volume measures how much real money is moving in and out of a cryptocurrency. High volume = lots of traders interested. Low volume = nobody cares.
Why Volume is Critical
Volume Confirms Price Moves
The golden rule: Volume should confirm price. If it doesn't, something's wrong.
Healthy trend (volume agrees with price):
- Price goes up + Volume goes up = Strong uptrend
- Price goes down + Volume goes up = Strong downtrend
- This is real money moving the market
Unhealthy trend (volume disagrees with price):
- Price goes up + Volume goes down = Weak move, likely fake
- Price goes down + Volume goes down = Weak selling, might bounce
Pro tip: If price makes a new high but volume is lower than the previous high, that's a "divergence" - warning sign the trend might be ending.
Volume Shows Market Interest
High volume means:
- Lots of traders are watching this coin
- Big players (institutions, whales) are involved
- News or events are driving action
- Liquidity is good - you can enter/exit easily
Low volume means:
- Nobody cares about this coin
- Probably just retail traders trading amongst themselves
- Harder to enter/exit without moving price
- Price action might be fake or manipulated
Real example:
- Bitcoin: $30 billion daily volume = deep, liquid market
- Small altcoin: $50,000 daily volume = shallow, risky market
Pro tip: Always check volume before trading. You might be able to get into a trade, but can you get out?
Types of Volume
1. Spot Volume
What it is: Actual buying and selling of cryptocurrency on spot markets
Example:
- You buy 1 BTC on Coinbase
- That's 1 BTC added to spot volume
Significance: Shows real trading, not speculation
2. Derivatives Volume
What it is: Trading volume from futures, options, and perpetual swaps
Example:
- You open a $100,000 Bitcoin futures position
- That's added to derivatives volume (but NOT spot volume)
Significance: Shows speculative interest, often much larger than spot volume
Pro tip: When derivatives volume >> spot volume, the market is dominated by speculators, not real buyers/sellers.
3. On-Chain Volume
What it is: Actual tokens moving between wallets on the blockchain
Example:
- You send 10 BTC from your wallet to an exchange
- That's 10 BTC of on-chain volume
Significance: Shows real utility and movement, not just exchange trading
How to Read Volume
Volume Bars Explained
On your chart:
- Volume bars are usually at the bottom
- Green bars = price closed higher than it opened
- Red bars = price closed lower than it opened
- Taller bars = more volume that period
Example:
Price chart shows:
Day 1: Big green candle + Tall volume bar = Strong buying
Day 2: Small red candle + Short volume bar = Weak selling
Day 3: Big green candle + Tiny volume bar = Fake move (no conviction)
Pro tip: Volume should spike on breakout moves. If price breaks resistance with tiny volume, it's probably a fake-out.
Volume Patterns to Know
Pattern 1: Volume Spike
What it looks like:
- Sudden massive volume bar
- 5-10x normal volume
- Usually on news or major events
What it means:
- Something big is happening
- Whales or institutions are moving
- Could be start of new trend OR blow-off top
Trading implication: Wait for the dust to settle before jumping in
Pattern 2: Volume Decline
What it looks like:
- Volume bars getting progressively smaller
- Price might be moving, but nobody cares
What it means:
- Trend is running out of gas
- Interest is fading
- Reversal likely coming
Trading implication: Don't chase trends with declining volume
Pattern 3: Volume Expansion
What it looks like:
- Volume bars getting progressively larger
- More and more traders joining the move
What it means:
- Trend is gaining strength
- More traders are noticing
- Momentum is building
Trading implication: This is where you want to be in trades
Real Trading Examples
Example 1: The Volume Confirmation
Scenario:
- Bitcoin breaks above $30,000 resistance
- Volume is 2x the daily average
- Price holds above $30,000
Analysis:
- Real breakout (volume confirms)
- Strong buying pressure
- Likely continue higher
Trading action: Buy the breakout with confidence
Contrast:
- Bitcoin breaks above $30,000 resistance
- Volume is 0.5x the daily average (very low)
- Price falls back below $30,000 next day
Analysis: Fake breakout (volume doesn't confirm)
Example 2: The Volume Divergence
Scenario:
- Bitcoin makes new high at $35,000
- Volume is lower than at the previous high ($32,000)
- Price starts struggling
Analysis:
- Buyers are exhausted
- Fewer people interested at higher prices
- Warning sign of potential top
Trading action: Take profits, tighten stops, don't buy the breakout
Example 3: The Volume Pump
Scenario:
- Small altcoin suddenly does 100x normal volume
- Price rockets 50%
- No actual news or developments
Analysis:
- Likely P&D (pump and dump)
- Whales pumping price to dump on retail
- Volume will dry up suddenly
Trading action: Don't FOMO in. If you're already in, take profits immediately
Pro tip: If a coin with $100k daily volume suddenly does $10M, that's not organic. That's manipulation.
Volume Strategies
Strategy 1: Volume Breakouts
Setup:
- Price consolidates in a range
- Volume declines during consolidation
- Price breaks out with volume spike
Entry: Buy when volume surges on breakout
Stop loss: Below the breakout level
Take profit: Next resistance level
Pro tip: The bigger the volume spike on breakout, the more reliable the move.
Strategy 2: Volume Climax
Setup:
- Extended trend (up or down)
- Massive volume spike
- Price stalls or reverses
What's happening:
- Final panic buying or selling
- Everyone who wanted to trade has traded
- Exhaustion point
Trading action: Take profits, look for reversal
Strategy 3: Volume Trend Confirmation
Setup:
- Price is trending up
- Volume is increasing as price rises
- Healthy trend
Trading action: Stay in long positions, trail stops
Warning sign: Price makes new high but volume drops
Trading action: Tighten stops, prepare to exit
Common Mistakes to Avoid
Mistake 1: Ignoring Volume
Wrong: Trading based only on price patterns
Result: You get faked out constantly
Right: Always check volume to confirm price moves
Mistake 2: Chasing Low Volume Moves
Wrong: Buying breakouts with tiny volume
Result: Fake-outs, stopped out
Right: Wait for volume confirmation before entering
Mistake 3: Overtrading Low Volume Coins
Wrong: Trading altcoins with $50k daily volume
Problem:
- Hard to enter/exit
- Easy to get stuck
- Price manipulation is easy
Right: Trade coins with at least $1M+ daily volume (preferably much more)
Mistake 4: Ignoring Volume Divergence
Wrong: Not noticing when price goes up but volume goes down
Result: You buy the top, trend reverses, you get wrecked
Right: Watch for divergences - they're early warning signs
Pro Tips from Experienced Traders
- Volume precedes price - Big volume moves often signal major trend changes
- Compare to average - Is current volume above or below the 30-day average?
- Look for volume spikes - These signal important market events
- Volume > price patterns - Volume is more reliable than most technical indicators
- Watch volume at key levels - Breakouts with high volume are real, low volume is fake
- Declining volume = weakening trend - No matter what price is doing
- Check volume across exchanges - Is volume high on one exchange but low on others? Something's off.
Key Takeaways
- Volume confirms price - price move without volume is suspicious
- High volume = real interest - low volume = nobody cares
- Volume precedes price - big volume moves often signal reversals
- Watch for divergences - price up/volume down = warning sign
- Volume spikes matter - they signal important events or reversals
- Check average volume - compare current volume to what's normal
- Trade liquid markets - avoid low volume coins
- Volume is truth - price can lie, volume doesn't
Bottom line: Volume is the fuel that moves markets. Price tells you where a cryptocurrency is going, but volume tells you if the move is real or fake. Ignore volume at your own peril. The best traders always check volume before making decisions - it's the difference between trading with the herd and getting trampled by it.
Related Terms
- Liquidity - How volume affects your ability to trade
- Market Cap - Total value, different from volume
- Order Book - Shows pending orders, not executed trades
- Volume Profile - Volume at specific price levels
- On-Balance Volume - Indicator tracking cumulative volume