What is Average Daily Trading Volume: Definition & Meaning Explained

trading volume definition

The primary rule regarding volume however remains that volume must expand in the direction of the market trend. We can also see on the volume chart on the bottom that the start of that fall was on a high volume day. Now that the volume has stabilized you can wait for the price to consolidate and volume to start moving up with buying pressure . We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. However, volume is used most often in stock trading, where it shows the number of shares that are being traded. The trading volume is usually higher when there is a significant price fluctuation in the market.

trading volume definition

As a rule of thumb, any price breakout or trend that is accompanied by above average volume could be considered more significant than price movements that are not. While swings in trading volume may not be enough on their own to reveal changes in a trend, they can give you a sense of how much strength there is behind a move. This is why it’s important to analyze both the price movement as well as the volume in order to gauge the validity of trend reversals, trend continuations, and chart patterns. Price levels with historically high volume can also give traders an indication regarding where the best entry and exit points could be located for a specific trade setup. A key bullish indicator is when a stock price is falling but volume is increasing, ahead of a share price rebound, followed by another decline. If the stock price doesn’t fall below the previous low when it declines the second time, and volume is down during that second decline, it is usually a bullish indicator. When considering volume while evaluating a particular stock, investors might want to assess how difficult it could be to dispose of their shares if they decide to sell.

What Does High Volume Trading Indicate?

The average daily trading volume could be determined over any time frame, such as the last five or ten days. The average trading volume over a period of 20 or 30 days, one quarter, six months, or a year is a typically used ADTV measure. The average daily trading volume is a key indicator since various investors and traders are drawn to markets with high or low trading volumes. Due to the ease of entering and exiting positions with high-volume trading, numerous investors and traders choose it over low-volume trading. Low-volume assets might be more difficult to enter or exit at a targeted price because there are lesser buyers and sellers.

Secondary sources, on the other hand, include research organizations, retailers, and surveys. In addition to tracking price, volume and market capitalisation, CoinGecko tracks community growth, open-source code development, major events and on-chain metrics. Bitcoin is normally the cryptocurrency which has the highest trading volume. Similarly, if a cryptocurrency which normally has high overall trading volume experiences a dip in its 24-hour volume, it may mean demand for the cryptocurrency is waning. For example, if a coin which normally has a low trading volume experiences a spike, it may signal a changing trend such as growing institutional interest.

The Calculation of the ADTV

While the price could continue to rise, many traders who use volume analysis will nevertheless look for other candidates. As volume offers an extra dimension when examining an asset’s price action, it is a popular tool in the technical analysis of financial markets. Together with various indicators, it allows day traders to come up with sound entry and exit strategies by looking at price action trading volume definition with the primary goal of capitalizing on trends. When they reach an agreement at a specific price, the transaction is recorded by the facilitating exchange. On the other hand, when a stock has bottomed out, many investors have been forced out by the falling price, causing high volumes and increased volatility. Volume then declines after the spike, although it may change again in the long term.