What is the most important trading indicator?

Published 07 November 2021
What is the most important trading indicator?


When it comes to market analysis, developing a personal trading strategy can be a key factor in getting a desirable outcome from trading operations. This article will focus on one of the most important (if not the most important) indicators, which is highly valued by both investors and traders — trading volume.

What is trading volume?

Trading volume is the sum total of actual trades taking place on cryptocurrency exchanges over a given period of time, usually 24 hours. Determining the trading volume is not difficult, this information can be found on crypto exchanges and or on special analytical platforms.

Trading volume is indicated at the bottom of the chart

How can trading volume help traders make predictions? If we reduce the principle of any market to one thing, it will be the supply and demand ratio which directly affects the price of the cryptocurrency. At the first glance at the chart above, you can establish a direct relationship between the trading volume and the price. Experienced traders are aware that it is the trading volume that forms the price of an asset, and not vice versa. By tracking changes in trading volumes, you can determine the demand for this crypto asset.

A surge in volume may indicate that large market players or speculators can be both increasing their positions as well as selling the asset. However, it is the former that determine the behavior of the market. Beginner traders should bear in mind that as long as the price remains in a certain range, large players will increase their positions. When the positions are created, the price remains clamped while traders place stop orders outside the price range. As soon as the price reaches the limits of this range, the orders get executed, and large players absorb trading volumes. Thus, a trend is formed. All these processes can be tracked with the help of the volume indicator.

There are three types of trading volume indicators:

  • Vertical volume shows the number of transactions for a specific asset.
  • Horizontal volume helps you track a specific price level. It also helps in analyzing support lines and their stability.
  • The cluster volume shows the volume traded at one price during the formation of one candle.

Trading strategies based on volume analysis

Keep in mind that the price cannot rise without corresponding changes in the volume metrics. Beginner traders need to focus on liquid markets with high trading volume, as this helps to reduce trading fees and increase order execution. Here are some strategies based on trading volume analysis.

Trend confirmation

The volume indicator is used to confirm existing market trends or to generate new forecasts. When the price moves in the direction of the real trend, the trading volume increases. When the volume decreases, the trend gets flattened.

The increasing volume confirms that the buyers and sellers can direct the price up or down. If the price changes in the direction of the trend, the volume should be lower. And vice versa, if the price moves against the trend, the volume should be higher.

Defining price reversals

A decrease in volume may indicate that one of the parties has lost interest in the asset, which can potentially lead to a price reversal. If the volume decreases in an uptrend, it means that fewer and fewer traders are expecting the price increase. This, in turn, indicates a weakening of the bull trend. Remember that the market is driven by supply and demand. When demand rises, so does the price.

When the volume jumps within a trend, it can often precede a trend reversal. If the market is in a bull trend and there is a sudden spike in trading volume, this should signal the start of a bear trend. Traders should pay attention to volume during the next price rebound.


Trading volume is one of the most important tools for analyzing and predicting market trends, as well as a necessary component when drafting a personal trading strategy. We hope you are left with no doubt that the trading volume deserves a considerable amount of attention because it is a key assistant for both a beginner and an experienced trader.

The acquired knowledge is better absorbed during practice. Trade the BTC/USDT pair now, analyze the trading volume, and expand the horizons of your trading achievements!