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importance of commercial volume in the evaluation of market trends
The cryptocurrency has been an extremely volatile and rapid evolution market since its plant. With the increase in decentralized digital currencies, investors have been attracted by the potential of high returns, but this also has significant risks. A key factor that can affect cryptocurrency prices is the volume of negotiation, which measures the number of units of a modified currency in a single day or week. In this article, we will explore the importance of the negotiation volume in market trends and because it is essential to consider when making investment decisions.
What is the trading volume?
The trading volume refers to the total amount of the cryptocurrency which is purchased and sold at a certain moment. It is calculated by multiplying the number of units exchanged per day or week with the current price of the currency. A volume of major trading indicates a higher demand for the activity, since more investors participate in the market.
importance of trading volume
- Entry of the market : the commercial volume can reveal the feeling and mood of investors on a certain day. Great volume transactions often indicate that multiple investors acquire or sell the activity, while small volumes can suggest a lack of trust in the market.
- Price stability
: a higher trading volume is usually related to price stability, because more buyers and sellers participate in the market. This can lead to lower volatility and more predictable prices.
- Confirmation of market trends : the trading volume is often used to confirm or contradict market trends. If a trend is strong, it is possible to notice an increase in the negotiation volume, while the weak volumes can indicate that the trend is due to an inversion.
- Risk management : Understanding the trading volume can help investors better manage the risk. A larger volume of transactions can indicate a more stable and less volatile price movement.
How to evaluate the volume of trading
- Search models : Identify the models in the trading volume how to increase or decrease. These models may indicate market trends at the base.
- Analyze historical data : study historical data on the volume of trading to understand the relationships between volumes and prices.
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Challenges and limitations
- MARKING MANAGEMENT : The commercial volume can be manipulated with artificial vehicles, such as false transactions or robots. This can lead to inaccurate conclusions on the feeling of the market.
- Sectionality : commercial volumes can have seasonality, in which prices are more volatile in certain periods of the year (for example, weekend).
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Best Practice
- diversification of your portfolio : diversification is essential for risk management when investing in cryptocurrencies. Spread investments in multiple activities and use different investment strategies.
- Establish light objectives and risk tolerance : fix realistic objectives and understand tolerance before entering the market.
- Stay informed : stay updated with market news, technical analysis and negotiation volume to make known decisions.
Conclusion
The volume of trading is a crucial factor in the evaluation of market trends for cryptocurrencies. By understanding and analyzing the volume of trading, investors can obtain valuable information on market feeling, price stability and risk management. While there are challenges and limitations associated with volume trading data, following the best practices, such as diversification, the definition of clear objectives and remain informed will help you make more informed investment decisions.