This article introduces the Trading Volume metric and how to analyze market trends via this metric.
Definition
The Trading Volume refers to the total value of tokens traded on decentralized exchanges (DEX) during a specific period. It represents the overall transaction volume of a particular token.
The Trading Volume chart shows the total Trading Volume of a particular token and the size distribution represented as enormous, large, moderate, and small transactions.
For example, suppose there are three transactions of examplecoins in a given time. The Trading Volume will be the sum number of the absolute value of these three transactions.
| Transaction |
| Sell 100 examplecoins for 10 USD each |
| Buy 100 examplecoins for 10 USD each |
| Sell 100 examplecoins for 20 USD each |
| Trading Volume: 4,000 USD (100*$10+100*$10+100*$20=$4,000) |
How can I use it?
Trading Volume is essential for traders to analyze the future price trend of a token.
Identify bullish and bearish signals
Combined with the price movements, four typical situations of Trading Volume can indicate the strength of a market trend.
| Metric | Condition 01 | Signal |
| Trading Volume | High volume during price rising | Bullish |
If the rising price is accompanied by high Trading Volume, it may indicate that solid buying power keeps pushing the price higher. Namely, optimistic buyers are buying the token at a higher price.
| Metric | Condition 02 | Signal |
| Trading Volume | Low volume during price falling | Bullish |
If the falling price is accompanied by low volume, it may indicate the selling pressure has been released, which may stop the falling trend and a possible price reversal soon. In other words, the price has approached the support level.
| Metric | Condition 03 | Signal |
| Trading Volume | High volume during price falling | Bearish |
If the falling price is accompanied by high volume, it may indicate that 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 falling.
| Metric | Condition 04 | Signal |
| Trading Volume | Low volume during price rising | Bearish |
If the rising price is accompanied by low volume, the price rise may not continue. Low volume represents that buyers are not optimistic about the continuous price rising and hesitate to buy at the current high price, which may lead to a possible price downward.