This article introduces the Turnover Rate and how to capture bullish and bearish signals via this metric.
The Turnover Rate refers to the percentage of a specific token’s trading amount in its Total Supply during a particular period.
For example, suppose there are three transactions of examplecoins in a given time, and the Total Supply is 10,000.
|Sell 200 examplecoins|
|Buy 200 examplecoins|
|Sell 100 examplecoins|
|Turnover Rate: 5% ( (200+200+100)/10,000=0.05 )|
How can I use it?
Identify bullish and bearish signals
The Turnover Rate can help traders make token buy/sell decisions similar to the metric trading volume. Combined with price volatility, there are four typical situations.
|Turnover Rate||High Turnover Rate during price rising||Bullish|
Positive signals. The token is attracting more active traders. This signal could reinforce the rising trend.
A rising price with a high Turnover Rate means an increasing number of transactions in the market. Optimistic buyers with solid buying power can push the price higher.
|Turnover Rate||Low Turnover Rate during price falling||Bullish|
Positive signals. The strength of a falling trend is fading as lesser tokens are being sold at a low price. Hence, the price may reach a resistance level soon.
A falling price with a low Turnover Rate means inactive traders and fewer transactions in the current falling market. This signal may reflect that the selling pressure has been released, stopping the falling trend and followed by a price reversal.
|Turnover Rate||High Turnover Rate during price falling||Bearish|
Negative sentiment among investors and indicates that the falling trend would continue.
A falling price with a high Turnover Rate may indicate panic selling has occurred in the market. Namely, disappointed traders are selling tokens even at a lower price, which may generate intense sell pressure on the market and lead to continuous price fall.
|Turnover Rate||Low Turnover Rate during price rising||Bearish|
Weaker buy power supports the current rising price, which may cause the upward price trend to stop.
A rising price with a low Turnover Rate indicates the price rise may not continue. A low Turnover Rate represents that traders are inactive, and buyers are likely to have little power to fuel the price continually. Therefore, it signals a potential break downward.