The volume indicator is so universal that it is used by most traders, no matter what their trading style. I will talk about the main methods of using this indicator in this idea.
📊What is the volume? A volume indicator is data from the exchange on how much cryptocurrency or shares were traded during a certain period of time. Volumes are displayed in the form of bars. The more bought and sold, the higher the bars on the indicator.
How can I use volumes?
✅Volumes show large trades, which helps to understand the sentiment of the market (bullish or bearish). In this GMT example, you can see how traders bought this coin 4 times and did not "let" the price go lower. After that, you could open a profitable trade on a breakdown of the trend line.
✅Test levels as support. The same principle as in the first example, but here there is a clear test of the level by the price. Volume growth in this case helps you to understand the strength of the buyers and open your trade!
✅False breakout is a situation in the market when the price breaks through a key level for a while and comes back under it. This pattern happens very often in the cryptocurrency market. The volumes grew, which shows a large amount of traded volume, but the price did not go higher and showed weakness, and then Bitcoin fell. Keep this pattern in mind.
✅Divergences. You can see a divergence in the Bitcoin price. Divergence is when the indicator and price values start to be different. As volumes rose, so did the price. After volumes began to fall and the price continued to rise, a divergence formed and Bitcoin fell by 50%. Divergences can be looked for in any cryptocurrency and any timeframe.
✅Indicators. Volumes are a classical indicator, on the basis of which many other well-known indicators are built: VWAP, OBV, etc.
⚙How can I add the volume indicator to the chart? You need to open "Indicators" on the top panel of TradingView and write "Volume" in the search bar. After clicking on the title, it will automatically be added to the chart.
🚩On what timeframes can I use volumes?
Volumes can be used on all timeframes, but it all depends on trading style:
1️⃣ Scalpers watch volumes on lower timeframes: 1m, 5m, 30m. In this way they can identify if the price reacts to a key level, trend line or value zone;
2️⃣ Swing traders use the indicator on timeframes from 1 hour to 1 day. By the same principle as scalpers, you can identify the reaction of other traders to a particular level. For example, Bitcoin has fallen to $50,000 and touched a key level where other traders' buy orders may have been placed. If there were really a lot of bids there, then on the volume indicator, you will see the bars rise as well as price rise. If there was no growth in the bars, it means that most likely the price will fall further.
3️⃣ Long-term traders use the indicator on timeframes from 1 day to 1 week and more. With the help of volumes on higher timeframes, you can identify large liquidation zones on exchanges, important resistance and support levels.
Friends, if you still have questions about how to use the volume indicator, write in the comments. What other methods of using this indicator do you know?
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P.S. Personally, I open an entry if the price shows it according to my strategy.
Always do your analysis before making a trade.
