Trading Volume and Its Importance

How to Read Volume on a Chart

Most trading platforms display volume as vertical bars (histogram) below the price chart. The height of each bar shows the amount of the asset traded during the corresponding time period.

• Color scheme: green (or white) bars typically correspond to rising price periods, red (or black) bars — to declining prices. This helps quickly identify where trading interest is concentrated.

• Relative analysis: it's important to compare current volume to historical data over the past days and weeks, rather than look at absolute values. A volume of 1,000 BTC might be low for one asset and high for another.

• Average volume: many platforms show a moving average of volume (commonly over 20 periods). Volumes above this line are considered elevated, those below — reduced.

Confirming Moves with Volume

• Healthy move: price increase on rising volume and price decline on rising volume are considered “healthy” moves. This shows that many participants support the current direction.

• Weak move: price increase on declining volume or price drop on declining volume signal a weak move. Such trends often lack strength and may reverse.

• Breakouts with confirmation: when price breaks a key support or resistance level on high volume, it’s a strong signal that the move will likely continue. Breakouts on low volume often turn out to be false.

• Accumulation and distribution: sideways periods — where price trades in a narrow range without forming an uptrend or downtrend — accompanied by increasing volume may indicate accumulation (buying) before a rally or distribution (selling) before a drop.

Price-Volume Divergences

A divergence occurs when price and volume move in opposite directions, often preceding a trend reversal.

• Bullish divergence: price makes new lows while volume declines. This may indicate weakening bearish pressure and a potential reversal upward.

• Bearish divergence: price hits new highs while volume decreases. This shows declining buying interest at high levels and a possible reversal downward.

• Volume spike: a sudden spike in volume at extreme price levels (panic selling at the bottom or euphoric buying at the top) often marks the end of a trend.

Volume Features in Crypto Markets

• 24/7 trading: crypto markets operate around the clock, so volume is unevenly distributed. Activity peaks usually occur during overlap of US, European, and Asian sessions.

• News impact: crypto markets are highly sensitive to news, which can cause sharp volume spikes. It’s important to distinguish volume driven by technical setups from news-driven volume.

• Different Exchanges: volume figures may vary significantly across exchanges. For analysis, use data from the most liquid platforms or aggregated indicators.

• Wash trading: some exchanges artificially inflate volumes. Focus on reputable platforms with real trading activity.

Practical Principles for Working with Volume

1. Confirmation, not foundation: use volume to confirm signals from price, levels, and patterns — not as a standalone entry trigger.

2. Context over absolute values: always compare current volume to average values over recent weeks and months.

3. Complex analysis: combine volume analysis with other tools: support/resistance levels, candlestick patterns, chart formations.

4. Patience during low volume: in times of low trading activity, it’s better to avoid active trading and wait for volume to increase.

How to Choose the Right Approach to Volume Analysis

Beginner traders should focus on the most basic principles: confirming breakouts with high volume and identifying divergences at key levels. Avoid advanced intraday volume analysis until you gain experience with price structures.

Checklist for Analyzing Trading Volume

1. Enable volume display on your trading chart

2. Compare current volume to average values over recent weeks

3. Evaluate how price direction aligns with volume dynamics

4. When analyzing breakouts, check if they are accompanied by high volume

5. Look for divergences between new price extremes and volume

6. Consider session timing when assessing activity

7. Avoid active trading during abnormally low volume periods

8. Use volume as confirmation — not as your main signal.

Common Mistakes When Using Volume

1. Trading solely on volume analysis without considering price action

2. Ignoring volume when assessing the strength of breakouts or reversals

3. Comparing absolute volume values without historical context

4. Expecting high volume on every price move

5. Overlooking the impact of trading sessions and news on volume

6. Trying to predict direction based on volume alone

7. Using data from illiquid or untrustworthy exchanges.

Trading volume is the voice of the market — it reveals the strength and conviction of the participants behind each move. It doesn’t give ready-made entry signals but helps evaluate price action quality and improves trading decisions. Start with the basics — confirming breakouts and spotting divergences — and deepen your understanding of this powerful analytical tool over time.