Trading volume, as the name suggests, refers to the amount of transactions completed in a certain period of time. It can be the trading volume of a specific cryptocurrency or the total market trading volume. It is one of the important indicators to measure market activity and buying and selling strength.

If we think of the market as a "bubble tea shop," then trading volume is the total amount of "bubble tea" sold during that period.
📋Next, I will introduce two types of changes that can occur in trading volume:
Shrinking Volume
Form: Trading volume significantly decreases compared to the previous period
Essence: Buyers and sellers' opinions tend to align, which can be divided into two situations
Everyone is pessimistic about this stock, expecting it to fall, leading to more selling and less buying
Everyone is optimistic about this stock, expecting it to rise, leading to more buying and less selling
Increasing Volume
Form: Trading volume significantly increases compared to the previous period
Essence: Buyers and sellers' opinions start to diverge, with some buying heavily and others selling heavily
📌How does volume affect price increases and decreases?
Once we understand the essence of volume, we realize it might seem useless—after all, the market either goes up or down, right? That’s correct, so we need to further understand how prices go up and down.
The core of price fluctuations is the supply and demand relationship in the market. For example: if a shop has only 50 cups of bubble tea but 100 people are waiting in line to buy, the shop owner has no worries about running out of stock and will raise the price from $5 to $6. At this point, if someone is willing to pay $6, the price of bubble tea will rise to $6. If someone thinks the price is too high and stops buying, the trading volume will decrease. The shop owner will see this and worry about unsold stock, so they lower the price to $5.50. This is a shrinking volume during an upward move. After lowering the price, more people will buy again, and the trading volume increases once more. Seeing this, the shop owner feels confident and raises the price again to $6.50, leading to another volume increase.
From this example, you can get a basic understanding of how prices rise. The same logic applies to price drops. Selling 100 cups of bubble tea to only 50 people will cause the price to fall. I won’t elaborate further here.
Therefore, we generally believe that volume changes precede price changes. By observing volume changes, we can gain some insight into the future price trend.
For example, after a long sideways market, a sudden increase in volume indicates that the shop owner and customers have significantly differing opinions. The shop owner thinks bubble tea might decrease in price and tries to sell more, while customers think prices will rise and buy quickly, causing a sudden surge in volume. This suggests that the price of bubble tea is likely to fluctuate rather than continue sideways. But will it go up or down?
This requires analyzing the price chart, which is what we call the volume-price relationship.
🏷️To summarize what volume is:
Volume allows us to preliminarily predict that future price fluctuations will become larger, moving away from the current sideways range. However, it cannot tell us whether the price will go up or down. The core of judging whether the price will rise or fall is to see which side has stronger strength—whether the stock of bubble tea (sellers) is larger or the number of customers (buyers) is larger. This is the key factor that determines the price trend.