Why is Volume an Important Investment Indicator for Crypto Traders Over RSI and Moving Averages?

Why is Volume an Important Investment Indicator for Crypto Traders Over RSI and Moving Averages?

There are many indicators that professional traders use to operate in the crypto market. When they combine their analysis with indicators, it is possible for them to have better results in predicting price movements or market directions.

According to a recent poll conducted by CoinDesk Markets, 39% of the respondents selected volume as the most important indicator when analysing assets. The second most voted indicator was the Relative Strength Index, also known as RSI; it received 30% of the votes.

The third choice was ‘Moving Averages’ gathering 23% of the votes. Just 9% of the respondents selected ‘Other’ as an option. Other answers were Elliott Waves or the Stochastic Oscillator, among others.

After the poll, CoinDesk asked several analysts and traders about their favourite indicators. For example, Matt Thompson, Director of Business Development and Operations at Coinigy, said that volume is the most important aspect after price. According to him, some traders believe that volume in a specific moment confirms or rejects a given hypothesis.

If there is a drop with large volume, analysts could think that there is exhaustion among traders and that a reversal would happen soon. The same can be said if the price skyrockets accompanied by a lot of volume. It could mark a trend reversal.

Josh Rager, another analyst, agrees with the fact that volume s a very important indicator. He said that if there is a higher price but no volume, it might be possible to experience a drop in the price as well.

Although volume is an important tool, it’s far from perfect. In several markets, trading volume can be faked. This is the so-called ‘wash trading.’ This means that traders make orders for other traders to see but before they get filled they withdraw them.

One of the most popular traders on Twitter, TheCryptoDog, mentioned about volume:

“If volume diverges from a trend, e-g- price continues to rise while volume falls off, then I start to think, ‘Perhaps this trend is weakening.’”

Bitcoin is the largest virtual currency in the market and it usually has the highest trading volume in the space.

As per Rager, Bitcoin has a lot of liquidity compared to other virtual currencies.