Technical analysis training; Confirmation of trends with trading volume – Section 6

Confirmation of trend with trading volume: As mentioned in the third part of the technical analysis training, trading volume actually shows the amount of buying and selling in the market of a digital currency for a certain period of time. The trading volume is displayed at the bottom of the chart, and the red or green of these bars also depends on the closing of the candelabra in that timeframe.

Why is trading volume important?

The trading volume is used to get approval when changing support and resistance trends and breaks. On the other hand, any move made by price, its strength can be related to the volume of its trades. Of course, sometimes the reason for the strange growth of a low-volume digital currency can be its manipulation, in which case often analysis can not be helpful.

To better understand the use of trading volume, see the Bitcoin chart on April 12, 2018.

The Bitcoin downtrend broke on April 8, after which the price came in contact with its downtrend again during a pullback. It is not possible to announce a trend change at this point with high certainty due to the low volume (below average). But four days later, on April 12, after seeing the high volume of trades, the uptrend can be confirmed. Of course, some traders also entered the buying position after pullback on the downtrend line, which gained more profit than the previous group of traders by taking more risk.

Confirmation of trends with trading volume

Another application of trading volume is to recognize the strength of the current trend. For example, when the chart is showing higher ceilings with lower volumes, it can be seen that the strength of the uptrend is decreasing and we must wait for the trend to change soon. For example, look at the Bitcoin chart again in the same time frame. The divergence between the higher ceilings (Higher Highs) and the decrease in volume indicate a decrease in the power of buyers and the emergence of sellers in the near future.

This can help you identify exit points to prepare for the sell position.

Trading volume can also be used to confirm failures that occur after pattern formation. For example, in the chart below, which is related to Bitcoin, after the formation of the Head and Shoulders pattern, a resistance failure occurred and to confirm this, the trading volume in the specified candlestick should be used.

Due to the high volume of transactions, this failure is confirmed and can be entered into the transaction for the buying position. Of course, in the next sections of the training, different patterns will be introduced and we will talk more about them.

First the volume, then the price

The last thing you should not overlook in trading volume is that it often gives you a signal to change trend before the price changes.

Section 7 Technical Analysis Training; Patterns