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Understanding the Volume Indicator

Understanding the Volume Indicator

Crypto Technical Analysis

11 Mar 2022

The volume indicator is one of the most commonly used indicators within both the traditional and cryptocurrency markets.

The volume indicator is one of the most commonly used indicators within both the traditional and cryptocurrency markets. This indicator measures how much a cryptocurrency has been traded over any given time period. Alongside this, the volume indicator is used to build numerous other indicators as well such as the Chaikin Money Flow and Klinger Oscillator.

Below we can see what a typical volume indicator looks like alongside BTC/USD.


The volume indicator can display a number of things such as interest in a cryptocurrency alongside bullish and bearish signals.

Below we can see an example looking at CHZ/USD as the increase in volume has shown increased long interest.


Firstly, let's take a look at the simple bearish and bullish signals provided by the volume indicator.

Bearish volume outlook

The volume indicator provides a bearish signal when a cryptocurrency's price decreases alongside increasing volume.

In the example below, we can see that between 08/11/18 - 20/11/18, BTC saw an increase in volume, but also a decrease in price. This showed traders that a new bearish trend was setting in. During 08/11/18 - 20/11/18, BTC fell 38% from $6500 USD to $4000 USD. BTC then continued the downwards trend to fall a further 27% from $4313 to $3100 USD.


Bullish volume outlook

Bullish volumes are mainly displayed over longer time periods. The increase in volume over a set period of time can show increasing interest in a cryptocurrency, therefore likely increase in price. Bullish volume signals are less effective and harder to judge than bearish volumes such as the one displayed above.

Below we can see the increased interest in BTC, which subsequently resulted in a volume increase.


Volume trend confirmations

Bullish trends should see an increase in volume in order to confirm a trend, while bearish trends typically show a decrease in volume as users are less interested in placing a spot trade. On the whole, this is the most useful part of the volume indicator: trend verification.

Volume indicator conclusion

All in all the volume indicator is a very handy indicator, especially when looking for trend verification and potential long-term bearish indicators. However, the indicator is most effective in its other formats such as the Klinger Oscillator as mentioned earlier. Like all indicators, the volume indicator should not be used by itself.

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