Concept of volume as an indicator

[Maus0728]

Greetings pips!

I am currently studying much of the basic concept of trading and have also watched numerous trading courses that can be found on the internet. However there is something that really doesn't make sense to me in terms of understanding how the volume works as an indicator of price action. These are the notes that I wrote as a summary of what I have learned so far but having difficulty of understanding why do we need to avoid or enter such trade when there is something happening in volume.

What is the correlation of volume in order to have a glimpse of proper trading execution?

[1] If the price is increasing but the volume is decreasing. Why do we need to avoid such trades?
[2] Regardless of how price is increasing or decreasing if the volume is low. Avoid such trades.
[3] Regardless of how price is increasing or decreasing if the volume is high there is a good opportunity for trading.
[4] If a cryptoasset is experiencing sideways on a longer period of time and the volume is continuously increasing. Why is it that this is a sign of reversal?
[5] If there is an ongoing breakout and volume is too low. Avoid such trades?
[6] If the price is continuously increasing while the volume is decreasing. Why is the this is another sign of trend reversal?

I know this is a lot of noob questions  , but the answers will be much appreciated.

[btcsmlcmnr]

why do we need to avoid or enter such trade when there is something happening in volume.

Volume means momentum. Bigger momentum than normal, price will rise. Smaller momentum or it dissappers, price will fall.

What is the correlation of volume in order to have a glimpse of proper trading execution?

Don't trade if you can not exit at any price. If you want to trade 1 BTC but the average volume of the coin you are interested in is 0.1 BTC, please skip it and choose others.

[1] If the price is increasing but the volume is decreasing. Why do we need to avoid such trades?

Two possibilities: it is a test before a new pump. It is a flash pump from a scam signal group. If you think it is a test, you have to follow it up. I only consider them as scam pumps before I can see real momentum for a real pump.

[2] Regardless of how price is increasing or decreasing if the volume is low. Avoid such trades.

Correct.

[3] Regardless of how price is increasing or decreasing if the volume is high there is a good opportunity for trading.

True.

[4] If a cryptoasset is experiencing sideways on a longer period of time and the volume is continuously increasing. Why is it that this is a sign of reversal?

Maybe.

[5] If there is an ongoing breakout and volume is too low. Avoid such trades?

I would avoid it.

[6] If the price is continuously increasing while the volume is decreasing. Why is the this is another sign of trend reversal?

Retailer effects maybe and it can be the end of one ride.

[Tytanowy Janusz]

There are so many things going on that fakes volume/ makes it hard to read that you should rather avoid this indicator or treat it with a grain of salt.

1-if price break support on your exchange first than price will go up (stop losses, over leveraged shorts etc.) arbitrage traders will buy from other exchanges dumping on yours filling orders making big volume while same breakout on other exchanges will affect in smaller volume and this is the same breakout, just observed on 2 different exchanges.
2- you, as a whale, can hide volume using futures/options
3- fake volume is not that expensive. If you are vip5 on binance its 1 000$ per 1 mln $ fake volume. This is enough to cheat volume for 90% of altcoins.
4 - its hard to read volume on high volatile market. Just take a look at that:

Volume is more a less constant? Nah it was 600k BTC at 5k$ BTC - $3b its 500k at 23k BTC now - 11.5 B$. What is more important? Growing volume in BTCs or in $?

If you want to trade using volume as indicator make sure to observe it on highest volume exchange. Binance futures currently

[so98nn]

[2] Regardless of how price is increasing or decreasing if the volume is low. Avoid such trades.
[3] Regardless of how price is increasing or decreasing if the volume is high there is a good opportunity for trading.

Volume is relative I guess. Volume can teach us whether the given trend for the increase or decrease in market value will continue further or it will halt anytime soon. For example, if the volume is at it's peak (relative to it's previous lowest volume), then certainly it tells us current trade is going to continue it's journey to the higher side.

In current scenario, Bitcoin was moving with upward trend and the volume was at it's peak. So we had amazing opportunity of trade. This is just the same as you stated in the point no. [3].

But it's debatable, price will only increase if the volume is higher and lower volume will state that your trades are at risky point and may not get executed with the right price.

[Wind_FURY]

why do we need to avoid or enter such trade when there is something happening in volume.

Volume means momentum. Bigger momentum than normal, price will rise. Smaller momentum or it dissappers, price will fall.

Volume does not mean "momentum", but an indicator of demand. More volume simply means more people, or more money, OR more people with more money are buying causing the surge in price. The "momentum" is when there's FOMO.

[btcsmlcmnr]

Volume does not mean "momentum", but an indicator of demand. More volume simply means more people, or more money, OR more people with more money are buying causing the surge in price. The "momentum" is when there's FOMO.

Thank you for the correction but I don't get the idea why do you consider volume as momentum when FOMO appears. It maybe a difference in language but say it in other words, I think volume is the fuel or force behind a growth. No fuel, no growth. Abundant fuel, price will rise if it appears after a long hybernation or accumulation.

[XZERO1]

[1] If the price is increasing but the volume is decreasing. Why do we need to avoid such trades?

Because low volume could mean lack of interest which eventually could lead to decrease in price since when the volume is low enough even a little sell pressure can affect the price significantly, but as you probably already know it's not a 100% thing and there are always some exception.

[2] Regardless of how price is increasing or decreasing if the volume is low. Avoid such trades.

Again lack of interest is not a good sign and you should be really careful even if a coin/token keeps going up while the volume is considerably low.

[3] Regardless of how price is increasing or decreasing if the volume is high there is a good opportunity for trading.

It means that if the volume is up you can more safely trade that asset in the buy low-sell high sort of way and use that trading pair to trade on a daily basis without taking too much risk, these trading pairs are great specially for scalp traders.

[4] If a cryptoasset is experiencing sideways on a longer period of time and the volume is continuously increasing. Why is it that this is a sign of reversal?

Not sure this one is necessarily true, and if the asset is staying on sideways while has some increase in volume it can still just as easily keep going up in price.

[5] If there is an ongoing breakout and volume is too low. Avoid such trades?

Because that is possibly a trap by market makers to spend a little money to increase the price temporarily and make more people buy that asset so that they can sell at a higher price.

[6] If the price is continuously increasing while the volume is decreasing. Why is the this is another sign of trend reversal?

Refer to my answer to the first question.

[Lorokan]

[1] If the price is increasing but the volume is decreasing. Why do we need to avoid such trades?

The increase in price and reduction in volume means that traders are exiting the token trade pair; could be taking profits or cutting losses.

[2] Regardless of how price is increasing or decreasing if the volume is low. Avoid such trades.
[3] Regardless of how price is increasing or decreasing if the volume is high there is a good opportunity for trading.

Regardless of the price or volume; what matters is your deduction and interpretation of the trade pair as well as the price movement. If you are very good with it, it doesn't matter if the price increases or the volume does. 

More importantly is to understand the strategy you are employing

[Maus0728]

Thank you for the correction but I don't get the idea why do you consider volume as momentum when FOMO appears.

I think that he is not referring to the volume but rather the relationship why there is a momentum that occurs when FOMO is happening. Let's just say that for example that bitcoin is rapidly gaining traction due to a lot of financial institutions who are jumping to BTC which perhaps causes a lot of excitement to every trader to jump into continuous upward trend which result to a so called "Momentum" right?

That's is how I understand the concept though.

Anyways, thank you for all the reply posts in this thread. I have realized that some of the reason why we avoid such trades with respect to volume as the indicator are just common sense based on the supply and demand. Might as well continue on the other basic concept. Thank you so much!!

[Wind_FURY]

Volume does not mean "momentum", but an indicator of demand. More volume simply means more people, or more money, OR more people with more money are buying causing the surge in price. The "momentum" is when there's FOMO.

Thank you for the correction but I don't get the idea why do you consider volume as momentum when FOMO appears. It maybe a difference in language but say it in other words, I think volume is the fuel or force behind a growth. No fuel, no growth. Abundant fuel, price will rise if it appears after a long hybernation or accumulation.

You're right in that volume is "the fuel", but the "movement" is the momentum. There can also be momentum without large volume, like manipulated shitcoins for example. For Bitcoin, large volume indicates high demand to "fuel the mometum" like you said.

Shitcoins low volume, manipulated momentum. Bitcoin real volume, organic momentum.

[btcsmlcmnr]

Anyways, thank you for all the reply posts in this thread. I have realized that some of the reason why we avoid such trades with respect to volume as the indicator are just common sense based on the supply and demand. Might as well continue on the other basic concept. Thank you so much!!

You are welcome.

You're right in that volume is "the fuel", but the "movement" is the momentum. There can also be momentum without large volume, like manipulated shitcoins for example. For Bitcoin, large volume indicates high demand to "fuel the mometum" like you said.

Shitcoins low volume, manipulated momentum. Bitcoin real volume, organic momentum.

It is clear. Thanks.

Shit altcoins with low volume can be manipulated by scam groups of pump signals. Many people lose money when they join those scam groups. They can get profits if they receive the signal very early in the group. If they receive signal too late, when they buy, other members in the group and the owner of the group dump coins into their buy orders. Scam pump signal groups can cause spike candles without any noticeable increase of volume.

[Lhaine]

Thank you for the correction but I don't get the idea why do you consider volume as momentum when FOMO appears.

I think that he is not referring to the volume but rather the relationship why there is a momentum that occurs when FOMO is happening. Let's just say that for example that bitcoin is rapidly gaining traction due to a lot of financial institutions who are jumping to BTC which perhaps causes a lot of excitement to every trader to jump into continuous upward trend which result to a so called "Momentum" right?

That's is how I understand the concept though.

Anyways, thank you for all the reply posts in this thread. I have realized that some of the reason why we avoid such trades with respect to volume as the indicator are just common sense based on the supply and demand. Might as well continue on the other basic concept. Thank you so much!!

For that institution that move into BTC you only heard that in news article. but no one can say when they bought it ,there is possibility that they bought it before the news release a week or amonth ago, so don't just base of it. It will not affect the price of Bitcoin for buying bulk you will directly ask the exchange if they can sell it to you that amount or find a person that willing to sell that large amount of BTC but will not use live market for buying.