Blockchain and Cryptocurrency Intermediate - The Link Between Volume and Trend and How to Use Volume to Predict a Trend Reversal

When it comes to price forecasting and trading any cryptocurrency asset, there is a strong relationship between volume and market trend.

The link between volume and uptrend using AAVE/USDT Pair

When the price is in an uptrend, there will also be a noticeable increase in the volume because the quantity of the asset being traded by traders increases and also there is an increase in momentum. This means that there will be much trading activity for that particular cryptocurrency in the market. The buying pressure from the buyers are suppressing the selling pressure from sellers hence why the price is in an uptrend. On the AAVE/USDT chart, we can see that in the area where the price is in an uptrend, there is also a noticeable increase in the volume.

AAVE/USDT Chart

The link between volume and uptrend using BNB/USDT Pair

When the price is in a downtrend, there will also be a noticeable increase in the selling volume and the momentum because there are more sellers in the market selling. The selling pressure from the sellers are pushing down the price hence why the price is in a downtrend. On the BNB/USDT chart, we can see that in the area where the price is in a downtrend, there is also a noticeable increase in the selling volume and also there is a decrease in volume that follows next.

BNB/USDT Chart

Question 3b - How to use volume to predict a trend reversal?

For uptrend reversal

When the price is in an uptrend, the volume indicator can be used to know when the trend is about to reverse. When the price is about to reverse from uptrend to downtrend, the selling volume bars will be in a downward slope which indicates that there is a slowdown in the upward momentum in the market and that the buying pressure is weakening. On the AAVE/USDT chart, we can see that the price candle was in an uptrend but the buying volume bars was on a downward slope which was an indication that the trend was about to reverse. The buying pressure was slowing down in each candle. After that there was a downtrend that followed next.

AAVE/USDT Chart

For Downtrend reversal

When the price is in a downtrend, the selling volume bars also shows a downward slope which indicates that there is a slowdown in the downward momentum in the market and that the selling pressure is weakening. On the AAVE/USDT chart, we can see that the price was in a downtrend but the selling volume bars was on also in a downward slope which was an indication that the trend was about to reverse to an uptrend. The selling pressure decreased and after that, an uptrend followed next.

AAVE/USDT Chart