Volume Indicator Price Divergence
The word divergence is derived from the Latin divergere, which can be translated as to strive apart. In general terms, it describes a deviation or divergence. In technical analysis, it refers specifically to the divergence between two chart trends or between the price trend and an indicator trend.
In the following, the focus is on divergences between the coin price trend and the OBV.
The calculation of the OBV is very simple: If the closing price of a period is higher than the closing price of the previous period, the value of the OBV is increased by the turnover of the corresponding period. If price falls compared to the previous closing price, the period sales are subtracted from the OBV accumulated up to that point.
The OBV is thus a cumulative total value of the period sales. This simple calculation scheme makes it possible to compare the price movement with the development of the volumes. Whether the OBV falls or rises depends solely on the prices. How much the indicator changes depends on the level of the respective volumes.
In general, as a sign of an intact trend, volumes should develop in the direction of the price movement. The course of the OBV should largely coincide with the price movement, as seen in chart 2.
This means: If the price of the underlying instrument reaches a local high, the OBV should also mark a local high. If the price falls, a local low should lead to a local low in OBV.
Chart 2) Trend confirmation by the on-balance volume indicator:
Is Market Cap The Best Way To Measure The Popularity Of A Cryptocurrency
Even though the market cap of a project is still seen as the most important indicator of relevancy, the concept behind this is often subject to criticism. The reason is that the market cap of a cryptocurrency more or less reflects the popularity of a coin over a longer term.
Large-cap cryptocurrencies are generally considered to be safe crypto investments. These are companies with a market cap of more than $10 billion. Investing in coins with large market capitalisation is usually a conservative strategy. These coins are likely to be less volatile than other cryptocurrencies but still more volatile than traditional assets like stocks.
Mid-cap cryptos are more volatile but also have a lot more growth potential than large-cap cryptocurrencies.
Small-cap cryptocurrencies are often extremely volatile and considered a highly risky investment, albeit sometimes with a lot of potential growth. However, be aware that they may also crash, literally from one minute to the next.
As always with cryptocurrencies, we recommend to do thorough research before investing and consider all vital factors involved. For instance, market cap as a metric doesnât say much about actual trading volumes over the last couple of hours. Therefore it makes sense to also check Coinmarketcap for the 24-hour trading volume that a cryptocurrency has on different exchanges over a reasonable period and other essential criteria before investing.
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Factors Affecting The Liquidity Of A Cryptocurrency
This is arguably the biggest factor that affects the liquidity in cryptocurrency. Volume simply refers to the number of crypto coins that have been either bought or sold on various trading platforms in the last twenty-four hours. A crypto assets trading volume shows the market interest in that particular cryptocurrency. Simply put, a higher trading volume shows that more traders are selling and purchasing crypto coins. So, higher volume translates into high liquidity.
A cryptocurrency exchange is a marketplace where cryptocurrencies are bought and sold. A popular and highly protected exchange is highly likely to attract more traders, resulting in increased revenue, better security, and more liquidity trading pools. Bigger exchanges boast high liquidity because of the large trading volumes.
The success of cryptocurrency trading majorly depends on its adoption and popularity within the crypto community. For a particular crypto coin to be liquid, it has to be accepted by a massive network of people that can actually use it in their transactions. This is why it is crucial for crypto coins to be accepted by both businesses and merchants as a mode of payment to boost the usability of crypto coins as a reliable transaction medium. Greater cryptocurrency acceptance translates to more liquidity.
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Choose A Trading Strategy
There are many techniques day traders use to make gains on short-term fluctuations in the crypto markets. A crypto day trader should devise a winning strategy backed by research, with well-laid plans for when to enter and exit their positions.
For prospective day traders, certain websites allow users to track and copy the most successful traders on the platform. Below are some of the most popular trading strategies in the crypto day trading game.
How To Use Technical Analysis
Technical analysis assumes that prices follow trends and history likes to repeat itself, thus, based on historical data, it is possible to predict the future prices of assets of interest. The data that technical analysts use can be found on the chart.
You will learn more about technical analysis and trend reading in this article.
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What Tether Volume Means
So what does it mean that Tether volume is up? More broadly, what does stablecoin volume mean for the cryptocurrency market on the whole?
Typically, this stablecoins volume suggests two different things:
Why Cryptocurrency Volume Is So Important
Volume is an indicator that definitely facilitates investment in the cryptocurrency exchange. By definition, volume measures the intensity and degree of importance of trends in the market. Its correct analysis allows you to understand the source of price changes and indicates when investors should sell or buy cryptocurrencies.
Importantly, volume determines real interest in financial instruments and not just apparent price fluctuations.
Cryptocurrency exchange volume is a tool that most experienced traders use. If you’re interested in bitcoin seriously, be sure to check out the current cryptocurrency volume charts.
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…or just keep calculating prices
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Options Volume And Open Interest Example
To understand the difference between volume and open interest, lets suppose that an option contract has zero volume and zero open interest. At this stage, Cynthia decides to buy five contracts from the writers of options contracts.
As Cynthia is the first trader, heres what the options chain should display that day:
- Volume: 5
- Open Interest: 5
Encouraged by the open interest, another trader, John, buys 10 option contracts the same day. Per the rules, the option chain will reflect the change:
- Volume: 15
- Open Interest: 15
Before the day ends, Cynthia decides to close two of her contracts and hold the remaining three contracts. Under these circumstances, the two additional transactions will add to the volume and decrease the open interest.
- Volume: 17
- Open Interest: 13
Before the day closes, an additional trader, Sam who owned four contracts decided to sell all of them. Notice the change in the two variables:
- Volume: 21
- Open Interest: 17
Since the volume will reset on the next day, the options chain should will look something like this the following day:
- Volume: 0
- Open Interest: 17
If an existing or new trader makes another transaction, that will be reflected in todays volume. Lets say that John, whos holding 10 contracts, closes his entire position. Therefore, the options chart will register the change as shown below:
- Volume: 10
- Open Interest: 7
- First Day Volume: 21
- Second Day Volume: 10
Why Is Trading Volume Significant
Like other terms you should know by heart, cryptocurrency trading volume is needed when you are identifying investments that suit you. A cryptocurrency token or coin might look like a shiny object, but having no trades tells you that it is risky to deal. Assets that have low volume are a tell-tale sign of a dead one, and they could even be withdrawn from an exchange for it!
You can try using unconventional trading volumes to recognize opportunities to gain money in the current market, too. This will probably push the prices up once investors exhaust the now available stock in the order books.
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What Is Technical Analysis Used For
The volume of a cryptocurrency is a basic indicator that is used for the technical analysis of an exchange. Therefore, before we move on to the volume itself, I will explain in a few sentences what technical analysis is. Generally speaking, it is a set of techniques that aim to forecast the future price or rate of a selected asset – it can be securities, cryptocurrencies or commodities.
The aim of technical analysis is to estimate the optimal moments for an investor to buy and sell. In simple terms, the models used in technical analysis assume that asset prices follow a recurring pattern.
What Does Market Cap Mean In Crypto
, short for market capitalization, is quite simply the circulating supply of a cryptocurrency multiplied by its current price. This is an important metric, because its what we most often use to rank cryptocurrencies by their relative sizes.
Those new to the cryptocurrencies world will often compare prices when trying to determine relative size between different coins. This is a poor approach and is even used by some to mislead potential investors. Purely looking at prices does not take into account the difference in available coins among cryptocurrencies.
Weve written an entire guide on circulating supply, but put simply, this is the current amount of technically available coins for a given cryptocurrency.
In the below image, we compare the current top 3 coins ranked by market cap. If comparing price, youll find Bitcoin has a price more than 19,000X greater than ripple XRP. However, this doesnt take into account that there are 39,792,720,000 more XRP than there are BTC in circulation.
To illustrate this point more clearly, lets imagine Bitcoin, Ethereum, and XRP all had the same market cap. While this would be our best estimation that these coins have the same amount of investment into them, the prices would still be drastically different.
This does NOT mean Ripple is cheap or a comparatively good investment opportunity solely based off of its far lower price.
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How Does Open Interest Affect The Buying Interest
A higher open interest usually attracts traders because its seen as a sign of liquidity, and thus potential motion in a certain direction. Theoretically, buyers prefer a contract that has a large open interest because it means they can quickly close their position at a reasonable price when exiting the trade.
Put simply, the higher open interest indicates that there are a lot of traders holding the contract. Therefore, theres always someone willing to buy or sell a contract at a desirable price.
This also means that theres usually less difference between the bid and ask prices. Since the asking price is in a desirable range, high open interest will likely encourage traders to buy the contract and vice versa.
Volume 24 Hour Trading Volume
Volume is the total number of crypto currency thats been traded in the last 24 hours. 24 hour coin volume is the second most important factor to consider when you are trading alt coins. When there is a pump going to happen for a coin then the first thing that starts showing signal is its Volume. The price follows as the volume of the coin goes up.
If the volume is more then it means then the coin is active and more people started to show interest in buying and selling. It will be easy for you to trade if the volume is more.
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What Does Market Cap Mean In Cryptocurrency
Advertise capitalisation is an marker that measures and keeps track of the showcase esteem of a cryptocurrency. is utilized as an pointer of the dominance and ubiquity of cryptocurrencies. Though this metric is broadly utilized, more data some time recently making exchanging choices is prescribed.
In common, the higher the of a cryptocurrency, the more overwhelming it is considered to be within the advertise. For this reason, showcase cap is regularly respected as the single most vital marker for positioning cryptocurrencies.
Exchange Liquidity Vs Cryptocurrency Liquidity
The difference between exchange liquidity and cryptocurrency liquidity has to do with whats being measured. In terms of an exchange, youre measuring the amount of a particular crypto asset you can sell on that exchange without experiencing major slippage. When measuring a specific cryptocurrencys liquidity, you will want to look at all of the various different ways in which that cryptocurrency can be turned into cash or other assets.
In the measurement of cryptocurrency liquidity, you will want to look at the order books of all of the exchanges where that asset can be traded, in addition to other variables, such as the acceptance of the crypto asset via payment processors.
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What Are Crypto Gas Limits
A gas limit is the maximum amount of gas you are willing to pay for to process and validate a particular translation. Ethereum lets you set your preferred gas limit but theres also a standard gas limit for all ETH transactions which is 21,000 units.
Setting your gas limit is tricky because you need to ensure that you set just the right amount of gas.
If you set a lower gas limit and your gas runs out before miners finish validating your transaction, you cannot recover used gas since miners have already used up computer power on the incomplete transaction.
However, if you have set a higher gas limit than you need, you can recover unused gas.
Note that even when theres enough gas and miners fail to validate your transactions, you still have to pay gas fees.
Example Of Trading Volume
Lets give you an anecdote.
For some time, John has been watching a specific crypto coin, and he starts to see a pattern. As he sees the volume is steadily rising, he takes this as his green light to start buying in. He invests for a fair price, and within some days, the volume exploded for his token.
The price goes up. He continues to monitor the chart, and soon he sees the trading volume is falling. He feels that current volumes will not support the asset price, and he sells to take his profit. It seems he was right. Within a week, the cost of his token begins falling due to a lack of demand. Jimmy has preserved his gains by recognizing the importance of trading volume.
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Whether To Buy Options With High Or Low Open Interest
High open interest is important because it shows signs of liquidity. Higher liquidity generally means that you can close a position whenever you want to at a reasonable price.
Likewise, the spread between the bid and ask prices is also low because there are lots of interested buyers and sellers. Lower spread means that you can enter the market easily without worrying about the high asking price. As a rule of thumb, bid-ask spread within 10% of the asking price is a sign of solid activity.
Because of these benefits, at-the-money options typically have the highest open interest. Traders are generally more interested in an at-the-money option because the options strike price is very close to the price of the underlying asset. On the other hand, OTM options often see less trading activity because the strike price is farther from the actual price of the underlying asset.
While a high open interest is beneficial in many instances, it doesnt mean that you shouldnt buy an option with low open interest. As discussed, most OTM options will have a low open interest.
Therefore, if you intend to hold a crypto option until its expiration date, low open interest doesnt really matter. Similarly, if youre sure that the long-term movement of the underlying asset will be in your favor, low open interest need not be a deciding factor in your decision-making process.
Is High Trading Volume Good Or Bad
Higher trading volume in crypto is mostly a good thing. It often leads to more stability and more liquidity for the market, making it easier for you to trade! However, lower volume assets may actually be more profitable, because they are subject to larger swings in price.
This is, of course, referring to natural and healthy volume levels. Hyperinflated and hype-driven volume can be dangerous and you should move cautiously when making trades here.
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What Does Liquidity Mean For Cryptocurrency
When different exchanges in the cryptocurrency space are compared, one of the terms that gets thrown around more than any other is liquidity. While other cryptocurrency exchange attributes, such as security and fees, are also extremely important to consider, liquidity can have a tremendous impact on ones ability to get a fair exchange rate for their crypto assets. But what is liquidity? Lets take a closer look at this key aspect of the exchange ecosystem.
Advantages Of Volume Trading Over Other Strategies
For a trader, volume analysis is advantageous because most indicators of technical analysis depend on the price for their calculation. Therefore, these indicators are often referred to as lagging indicators in relation to the price because they have an inherent time lag, such as moving averages.
Volume, on the other hand, is a variable that is independent of price and available to the trader in real time. This makes volume indicators an independent and valuable source of information when trading. In general, the assumption is that volume anticipates the movement of prices. This means that trend changes are announced by the decrease in volume. Thus, volume analysis is able to signal the stability of a trend.
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