Volume-Price Divergence: A Key Indicator for Mid-Term
Operations (1/100)
As part of our ongoing lecture series, this update will focus on volume-price divergence in mid-term operations. Volume is a crucial tool for understanding market movements, especially when it comes to altcoins. Unlike the K-line charts, which can sometimes mislead, volume gives a clearer picture of market activity. High volume signals strong participation and market interest, while low volume suggests a lack of attention.
When analyzing a market with a double-top structure, it is essential to observe the volume at each peak. If the second top shows lower volume than the first, the likelihood of a price drop increases significantly. In such cases, consider shorting the market towards the neckline, as this indicates a high probability of a reversal. Similarly, if a market is rising but the volume is consistently declining, this could signal a potential exhaustion of momentum. For example, in the case of $SUI, where volume has been diminishing on a weekly chart, this suggests the market may not sustain its upward trend without volume support. In such instances, taking profit or setting stop losses is a wise decision until volume picks up again.
The principle of volume exhaustion can be understood through the analogy of a famous actor whose popularity begins to fade despite increasing pay. Over time, if the demand for his performances dwindles, the actor must lower his price to regain attention. In a similar way, a market with decreasing volume may struggle to sustain rising prices, and it is crucial to adjust your trading strategy accordingly.
Finally, itโs important to recognize that the best signals for volume-price divergence typically emerge in the 4-hour, daily, and weekly timeframes. Smaller timeframes tend to have more noise and are less reliable, as they can be affected by factors like liquidation data.
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