What is volume? How to use the trading volume indicator effectively

5Mni...e7Bz

27 Jan 2024

Trading volume is an information often overlooked by many traders, especially beginners. However, volume indicators offer many advantages and can be of great help when it comes to technical analysis. Next, let's learn about a basic volume indicator - Volume with the following content:

What is trading volume (Volume)?
Install the Volume indicator on the trading platform
Structure of the Volume indicator
Signals of the Volume indicator
Relationship between Volume and Price
Meaning of the Volume indicator

What is volume?

Trading volume (Volume) is a number that measures the amount of money bought or sold in a certain period of time. It can assist you in identifying market trends and contribute to the formation of an effective trading system. Volume can even assist you in predicting market fluctuations 2 months in advance. -3 days.

Trading Volume can also show you the overall picture of the market , whether the market supports a price trend or not. The relative relationship between current price and trading volume will indicate the level of trader interest in the market.

High trading volume and rising prices are the best indicator that interest is growing. Meanwhile, low trading volume means low interest and the potential for prices to fall. Trading volume also represents market liquidity and is an important factor in making buying decisions.

Install Volume indicator on Tradingview and Binance

If you already understand what Volume is, go to the step of setting Volume on trading platforms.

To install the Volume indicator on any platform, the first thing you need to do is create an account, log in and go to the chart! In this article, I will guide you through installing the Volume indicator on Tradingview and the Binance exchange.

Tradingview

As I said, you need to know about TradingView and register for an account. After registering, click on " Chart " to enter the analysis chart.

Set Volume on Tradingview
Once on the chart, follow these 3 steps:

Click on the Fx icon in the top bar.
In the search box, please fill in the word " Volume ".
After getting the results, click on the first line.

Set Volume on Tradingview

So you have finished setting the Volume indicator. When this frame is turned off the indicator will appear below the price.

Binance exchange

Currently, Binance is considered the world's largest centralized cryptocurrency exchange. How to register an account on Binance is quite complicated and requires multiple steps of identity verification . Therefore, you need to see detailed instructions on how to register an account here .

After logging in and accessing Binance's chart, follow these 3 steps:

Click on the icon near the time frame that displays the word " Technical indicator ".
Normally, Binance will use the MA & VOL indicators as the two default indicators. So you just need to click to delete the MA indicator.
So only the volume indicator remains on the Chart.

Install Volume on Binance

Structure of the Volume indicator

The volume indicator includes a volume range divided into two dark and light colors to distinguish growth volume and decline volume.
An MA(20) is shown in black moving along this volume range.

Structure of the Volume indicator

By default, the increase and decrease volume are constants, so you cannot change the settings. MA will be calculated according to parameter 20: average of the previous 20 trading sessions.

To adjust the parameters of the MA line as well as the color you need to follow these 3 steps:

You can change the parameters of this indicator by clicking on the Settings icon (wheel logo) in step 1.
You can change the input parameters in step 2.
Adjust the color change and intensity of the indicator in step 3.

Structure of the Volume indicator

Instructions for using the Volume indicator

So, you also clearly understand what the Volume indicator is and how to install it on the floor. Now I will show you how to use it effectively through 4 signals .

Confirm price trend

Trading volume increases following the price trend, which means confirming the newly formed price trend.

In an uptrend:

Volume increases when price is going up (rising).
Volume decreases when price goes down (fall).

Trading volume in an increasing trend
In a downtrend:

Volume increases as price goes down (fall).
Volume decreases as price moves up (increases).

Trading volume in a downtrend

Trading volume decreases as prices increase, reflecting reduced interest. This is a manifestation of divergence between price and volume. Prices may continue to increase, but the upward momentum is weak and can easily reverse.

Confirmation of reversal

In an uptrend , when the price is making a higher peak, but the volume is decreasing, it shows that there are not many buyers left, so there is a possibility of a bearish reversal => SELL

Reversal in an uptrend

In a downtrend , when the price is creating a lower bottom, but the volume is decreasing, it shows that there are not many sellers left, so there is a possibility of a reversal to increase the price => BUY

Reversal in downtrend

Recognize that the market is being manipulated

When the price is in a sudden increase or decrease but the volume is not high. This means that at that time, if there is only one individual or small organization intentionally buying or selling, there is a high possibility that the market is being manipulated. You should limit transactions at this time.

The market is being manipulated

Confirmation of support and resistance zones

At support and resistance points, volume is an important factor in confirming price breakouts:

When volume increases suddenly above the resistance level or below the support level => it is likely that a price breakout will occur.
When the volume decreases or there is no sudden increase => it is likely that the price breakout from this zone has failed.

Learn more 05 simple ways to identify support and resistance .

Relationship between price and volume

Investors do not use volume alone to evaluate the overall market and then make decisions, but use it in combination with price movements to understand and determine trends. The relationship between price and volume is shown in the table below:

Relationship between price and volume

So, when the market is trending up, look at the market volume and see if the volume increases or decreases.

If volume increases, it means that the trend is strong and there is a high possibility that the market will continue to move in an uptrend.
On the contrary, if the downtrend has a strong increase in volume, there is a high possibility that the market will continue to move in a downtrend.
When price increases but volume decreases or price decreases but volume also decreases, the trend is less reliable and may reverse.

Meaning of the Volume indicator

Increased volume means the market is more interested in that price compared to other prices in the market. And this is also understood in both the sense of buying volume and selling volume (many people prefer to buy at that price or sell at that price).
A market with high volume also means that the market is actively traded and has high liquidity.
High volume is also a characteristic feature of a newly formed trend . Such as when the price has just broken out of a previous sideway period. Or it could be that at the time the market is about to bottom, the selling volume increases suddenly, proving that investors are panicking and selling off their trading positions.
Low volume shows that the market is unstable , illiquid, and investors lack confidence when trading at that price. It can also be a sign of a sideways market period.
Increasing volume is a signal that the market is about to have a new breakout , but it can also create a peak or bottom. Whether it's a peak or a bottom, increasing volume shows that a new mutation is about to happen in the market.

Learn more about the MACD Indicator and how to use it effectively in trading .

summary

Recently, I introduced to you all the knowledge about the trading volume indicator or Volume. Besides, I have also shared with you how to effectively use and trade methods with this indicator.

This learning series is for those who have just begun to learn about trading volume (Volume) as well as technical analysis that can be easily read, understood and remembered.

If you have any questions, please leave a comment below so MarginATM can assist you!