For those who are new to the cryptocurrency market, understanding trading volume and the order book is essential to making informed decisions. These tools help identify liquidity, interest in the asset, and price movement trends.
Volume: The Pulse of the Market
Volume represents the amount of a currency traded in a given period (usually 24 hours).
Why is it important?
• Indicates liquidity: Coins with high volume are easier to buy and sell without major price variations. Coins with low volume can be risky, as their limited liquidity makes trading difficult and can generate slippage (unexpected difference in the final price).
• Shows interest: A growing volume indicates greater market interest, signaling that the currency is active and has potential. Low volumes, on the other hand, may suggest disinterest or manipulation.
The Order Book: The Contest of Powers
The order book displays all pending buy (bids) and sell (asks) orders, organized by price and quantity.
• Buyer strength vs. Seller: When looking at the order book, see which side has the highest volume and intensity. If buyers predominate, there is greater demand, suggesting appreciation. If sellers are stronger, the price may fall.
• Resistance and support: Large volumes at certain prices create barriers. A high selling volume forms a resistance (making it difficult to rise), while a high buying volume creates a support (limiting falls).
Why is this important?
• Volume confirms whether the currency is active and safe to trade. Trading low-volume assets increases the risk of losses.
• The order book helps predict immediate price movements, identifying where there is the greatest buying or selling pressure.
Practical Tip
Prefer currencies with high and consistent volume. Avoid assets with low volume, as they can be manipulated or difficult to trade
