Understanding volume — volume profile, OBV, volume-weighted average price (VWAP), and how to spot fake breakouts using volume.
Volume is the number of units traded in a given period — it reveals the conviction behind price moves. Price tells you what happened; volume tells you how significant it was. A breakout on high volume is far more likely to follow through than one on low volume.
In crypto, volume is available 24/7 across multiple exchanges. Use aggregate volume (total across all exchanges) for the most accurate picture. Individual exchange volume can be misleading due to wash trading.
Volume Analysis
High volume confirms price moves. Volume spikes on breakouts signal strong conviction; low volume moves are unreliable.
Healthy uptrend: Price rising on increasing volume = strong buying conviction. Sustainable.
Weak uptrend: Price rising on decreasing volume = fewer buyers at higher prices. Likely to reverse.
Healthy downtrend: Price falling on increasing volume = strong selling pressure. More downside likely.
Climactic volume: Extremely high volume after an extended move often signals exhaustion — the last buyers/sellers have entered, and a reversal is near.
Pro Tip: Volume spikes at key support/resistance levels are particularly significant. A rejection from resistance on massive volume means strong sellers are defending that level.
OBV is a cumulative indicator that adds volume on up days and subtracts volume on down days. It reveals whether volume is flowing into or out of an asset, often leading price moves.
Bullish signal: OBV rising while price is flat or declining = accumulation (smart money buying). Bearish signal: OBV falling while price is flat or rising = distribution (smart money selling).
Volume profile shows volume traded at each price level (not over time). It reveals: High Volume Nodes (HVN) — price levels where lots of trading occurred (act as magnets/support/resistance), and Low Volume Nodes (LVN) — price levels with little trading (price moves quickly through these).
The Point of Control (POC) is the price level with the most volume traded — it acts as a strong magnet. Price tends to return to the POC, making it useful for mean-reversion trades.
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