Lesson Fifteen

Yibo Shuo Bi host provides valuable insights; keep them for future reference.

This guide is specially prepared for investors trading cryptocurrencies like Bitcoin, Ethereum, and others. The core is to teach you how to use “trading volume” to judge market trends and assist trading, summarized in plain language as follows:

1. Understand the basics: What exactly is trading volume?

Trading volume is the total amount of cryptocurrency traded within a certain period. Its main function is to assess market activity and capital participation. The key is to look at “price-volume correlation”: when prices rise, trading volume should increase simultaneously, indicating that the rally is supported by funds and the trend is reliable; if prices go up but volume shrinks (not many trades), the upward momentum is likely unsustainable and may pull back.

A little extra knowledge: different exchanges may have varying rules for calculating volume, which can sometimes be manipulated; on-chain data (actual transfer records on the blockchain) can exclude fake trades and provide more reliable reference.

2. How to interpret trading volume across different timeframes?

1. Intraday short-term (same day trading): Focus on 1-minute and 5-minute volume. For example, when breaking above the previous day’s high or other key levels, if volume is insufficient, it could be a “false breakout”; if the price hits a new high but volume doesn’t follow, a pullback is likely.

2. Mid-term (weeks to months): Pay attention to 5-day and 20-day moving averages of volume. If short-term average volume remains higher than long-term, it indicates a stable uptrend; on weekly charts, a breakout from sideways consolidation with increased volume may signal the start of a mid-term rally.

3. Long-term (major trend): Combine with on-chain large fund movements. For instance, at the bottom, if volume continues to grow but price remains stable, it could be “smart money” (professional investors) quietly accumulating, potentially leading to a big move later.

3. How to use volume in extreme market conditions (sharp rise/fall/sideways)?

1. During rapid increases: If prices keep rising but volume gradually declines, it signals a top; a breakout with historically large volume suggests a solid move with room to run; if volume suddenly spikes but price stalls, it might be a “show” by the main players to trap retail traders.

2. During sharp declines: Use the “pyramid averaging method” (gradually add small positions as price falls), but stop adding after a drop of over 10%, prioritizing reducing risk; also monitor large on-chain fund movements to avoid bottom-fishing at the wrong level.

3. During prolonged sideways trading: Volume drops to very low levels (e.g., below 30% of the yearly average), indicating market sentiment is subdued and bulls and bears are stalemated; a subsequent increase in volume often precedes a trend change (either up or down).

4. Differences in volume analysis between mainstream coins and altcoins

1. Mainstream coins (Bitcoin, Ethereum): More reliable, with clear volume-price patterns (volume increases when rising, decreases when falling), ample liquidity, and large trades generally won’t significantly impact price; can also incorporate derivatives volume (futures, options) to further confirm trend.

2. Altcoins: Higher risk, small amounts of capital can cause sharp price swings. Sudden volume spikes are often manipulated or driven by whales, with poor continuation; sometimes prices rise while volume drops—an abnormal sign. Always combine with on-chain large transfer data to verify signals.

5. How to apply these techniques in actual trading?

1. Master basic indicators: such as OBV (to judge capital flow), VWAP (institutional average cost), avoiding relying solely on price; single signals are prone to misjudgment.

2. Multi-dimensional validation: when breaking key levels, volume should at least be 1.5 times the daily average to be reliable; also cross-reference data across different timeframes and exchanges to avoid false signals from a single platform.

3. Practice + strict risk control: test strategies with demo trading first (e.g., “buy on volume breakout, sell on volume decline”), and in real trading, set strict stop-loss and take-profit levels; never base decisions solely on volume signals.

4. Adjust strategies flexibly: different standards apply in bull and bear markets; altcoins are suitable for short-term trading, quick in and out; mainstream coins can be used for both short-term and long-term planning—don’t stick to one method blindly.

Summary: Trading volume is a core tool for judging market authenticity and understanding capital movements. The key is to apply it flexibly across different timeframes, coins, and market scenarios, combined with other data and risk management rules, to effectively improve trading success rates.