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When it comes to analyzing the markets, developing your own trading style can be the difference between a commercial success or a financial pain.
Traders use a variety of indicators to add levels of confirmation to their bias in order to get the most accurate results. But if I could choose only one indicator to be used for the cryptocurrency market, what would it be and why?
A survey recently conducted by CoinDesk Markets revealed that the volume was the indicator of choice for 39% of respondents, while the Relative Strength Index (RSI) reached the second place at 29% of the total votes.
The poll elicited great reactions for alternatives like Elliott wave theory, differences and the Stochastic oscillator, which are useful in themselves, but depend largely on the style and experience of an individual's technical chart.
We contacted some prominent cryptocurrency traders and graphs to see what they thought was the only indicator they could not live without.
Matt Thompson, Director of Business Development and Operations a Coinigy he said this regarding his best choice to analyze the crypto markets: "Volume is undoubtedly the most important aspect outside the price".
"Even for many other technical indicators, the volume can serve as confirmation or refusal of a given hypothesis," he continued.
By definition, volume is intended to describe the total number of shares or contracts in a given period and is usually expressed in a bar chart. Professional traders and chartists use the volume with great advantage, following the mantra that if the price drops with the volume, generally marks a point of exhaustion, signaling that an inversion will happen soon.
Whereas, on the contrary, a price increase with a decrease in total volume is a stronger case for bears, since they drag prices for a lower supply, usually when a key resistance zone is encountered.
The encrypted Twitter chart Josh Rager is in agreement with this sentiment. "I think volume is a good indicator. The higher price and low volume usually lead to a fall in price, "he said.
"TheCryptoDog", a well-known character and chart of Twitter, also supported the volume as a "crucial" element in his technical analysis, telling CoinDesk:
"The volume speaks of the sincerity of the price action to which it is linked, and the volume is imperative for me."
Putting it into practice
So, in practice, what does the volume look like?
In the chart above, we can see the bitcoin price on Coinbase on December 8th. The day's trading closed mid-candle (during a price movement) at a time when the volume was increasing. If the volume is bullish and moves higher, but the price is falling, it is usually a sign that traders who are hoping the price will rise are likely to be trapped and forced to sell for less than the price at which they came in.
Price action then turned into another decision two days later, when prices attempted to go beyond the $ 3.585 resistance level on 10 December and were rejected. A modest representation of bears immersed bitcoins in a lower channel between $ 3.257 and then under $ 3.129 on December 12th.
Since then it has risen from its low position to levels not seen in over a week with the support of a strong bullish volume.
A useful tool
However, Volume has its flaws for all its merits.
For example, the volume of cryptographic exchanges may not actually represent that buyers will follow an expected purchase. The volume can be counterfeited with what is known as "wash trading", a term that refers to when traders order the other traders to see, but withdraw them before they are filled.
It is true that some particular exchanges have been involved in a scandal in which the true volume is displayed incorrectly, and therefore manipulates traders towards unprofitable and risky trade.
Traders like Rager, however, believe that bitcoin is a rarity among cryptocurrencies because its market has real liquidity. "I think the bitcoin is different, there's so much liquidity compared to other criptos," he said.
However, there is validity in the analysis of the association of bitcoins with the total volume on the charts, not least because they provide an additional signal to add to your injury, but because it can signal interest in the asset class as a whole, represented by the grandcoom bitcoin application, be sure to select an exchange that can be eliminated from any irregularities.
As says "TheCryptoDog":
"If the volume diverges from a trend, for example, the price continues to rise while the volume decreases, then I start thinking:" Maybe this trend is weakening ".
Revelation: The author USDT at the time of writing.
Image of the river through Shutterstock; graphics of Trading View
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