One of the more accessible technical indicators you can find while researching which coins to buy is the daily trading volume. As you can see in this video, the daily trading volume for the cryptocurrency industry as a whole has been increasing at 20-50% each month. In fact, Business Insider reported last December that the cryptocurrency daily trading volume has passed $50 billion, the same as is seen every day on the New York Stock Exchange.
And while comparing daily trading volume in the New York Stock Exchange to the worldwide cryptocurrency market may not be an exact apples to apples comparison, it certainly shows that cryptocurrency trading has become as popular as trading stocks on the New York Stock Exchange.
What is Daily Trading Volume?
The average daily trading volume (ADTV) is essentially the average amount of individual coins traded in a day. If five hundred coins are traded over the course of a five day period, your ADTV would be one hundred. If five million coins were traded over the course of five days, your ADTV would be one million.
Why Should Traders Care?
The average daily trading volume is an important indicator into the coin’s liquidity. Liquidity, of course, is how easily someone can buy and sell something. Generally speaking, as the ADTV increases, the coin becomes more liquid. There are more people willing to buy the coin. That indicates that the price of the coin is on the rise.
Conversely, as ADTV decreases, that indicates that people are not looking to buy the coin. When that happens, the value typically drops on the coin.
One often overlooked market response to high levels of ADTV is that the more active the coin, the more stable its price tends to be. This is because there is a large market of buyers and sellers for the coin, which means that it takes a higher percentage of trades to impact the price. The results of the increased trading levels is lower volatility in the coin’s value, and more stability for investors.
Why does Daily Trading Volume Fluctuate?
While there are many reasons why daily trading volume could fluctuate, when you see significant changes in a coins ADTV, it usually is a signal indicating that there is something going on with that coin. Often times it indicates that there has been some news released about the coin, causing people to want to trade it, while sometimes the news is about the market in general, rather than a specific coin.
There are also some other natural reasons for fluctuations in the ADTV. In contrast with the stock market, the cryptocurrency trading market is open for business twenty four hours a day, seven days a week. Lower trade volumes over the weekend generally don’t indicate anything about a coin’s strength, and really just indicates that the people who trade these coins have taken the weekend off.
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