Are you terrified by the changes in the K-line red and green? The real signal is hidden in the trading volume.
Last year, I too was fixated on a certain popular coin, watching the price soar on the daily chart, and I was secretly delighted, thinking I was about to ride the wealth express. But upon closer inspection, while the price hit new highs, the trading volume was continuously shrinking. I overlooked this key signal, and as a result, three days later, a big bearish candle came crashing down, not only wiping out all profits but also incurring a loss of principal.
This lesson made me deeply understand: price is just the surface, trading volume reveals the truth. Today, I want to share how to understand the true language behind the market through the relationship between volume and price.
01 Volume, the true language behind the market.
In the cryptocurrency circle, many newcomers only pay attention to price rises and falls, but overlook the most honest indicator—volume. Simply put, volume is the amount of a certain asset traded within a certain period.
It represents the market's activity level and the emotions of participants. High volume indicates high market attention and good liquidity; low volume indicates a cold market with little interest from participants.
But volume is far more than this. It reveals the buying and selling pressure in the market and the flow of funds, which simple price trends cannot tell us.
Dealers can manipulate prices to create false breakout traps, but volume often better reflects the real situation. This is because significant capital movements will inevitably leave traces in the volume, which is difficult to completely cover up.
When I learned to interpret these 'volume-price暗语', the market became like a movie with subtitles for me. Although risks still exist, at least I am no longer blind.
02 Three major price暗语, understand the real intentions of the dealer
暗语 one: Price rises with volume shrinking, mostly an illusion.
I call this situation 'false prosperity'—prices are at new highs, but volume does not increase; instead, it decreases. This is a dangerous signal in the market.
A normal healthy rise should be a simultaneous increase in price and volume, indicating strong buying power and high market consensus.
However, price rising with volume shrinking indicates low market participation and a lack of sufficient buying support, making such a rise difficult to sustain.
Especially after a significant price rise, if volume shrinks, it likely means that the dealer is secretly distributing chips and is no longer willing to invest funds to push prices higher. This usually signals a trend reversal is imminent.
暗语 two: Price stable with volume increasing, hiding secrets.
When prices are consolidating sideways with small fluctuations, but volume significantly expands, it often means that something big is about to happen. This 'hearing thunder in silence' signal needs special attention.
Price stable with volume increasing usually indicates that large funds are secretly laying out. Dealers will quietly accumulate within a relatively narrow range to avoid attracting market attention.
They maintain price stability by matching buy and sell orders while gradually collecting chips.
If this situation occurs in the bottom area after a long-term decline, it may likely indicate that the dealer's accumulation phase is nearing its end, and a wave of upward movement is about to start.
Just like that old saying in the market: 'The longer the horizontal, the higher the vertical.'
暗语 three: High level sideways, risk greater than opportunity.
Many investors believe that sideways consolidation is the market 'resting', and the original trend will continue afterward. However, this idea is especially dangerous at high levels.
Sideways movement at high levels is often the stage where dealers 'split the spoils'. The key to distinguishing between bottom sideways and high sideways is the change in volume and the combination of K-line.
During bottom sideways movements, volume usually gradually increases, and occasional bearish candles are quickly engulfed by bullish candles, forming a pattern of 'bearish candles eating stocks'.
This indicates that the dealer is actively accumulating.
During high-level sideways movements, volume often gradually shrinks, and bearish candles slowly start to engulf bullish candles, forming a 'bearish candle distribution' pattern. If this is accompanied by a surge in open interest, it is an even more dangerous signal, indicating that the dealer is distributing on a large scale.
03 Practical skills, accurately identifying accumulation and distribution.
Characteristics of the accumulation stage:
Dealers generally choose to accumulate quietly during market downturns when most investors are panic selling. Typical characteristics include: increasing volume during rises and decreasing volume during falls; stock prices fluctuate at low levels, but the downside space is limited; forms such as continuous small upward lines or long lower shadows appear.
The key to identifying accumulation is to observe whether the price-volume relationship is healthy. Dealers will not allow the price to drop significantly during accumulation because that would result in their chips being snatched by other investors. They will gradually collect chips while maintaining price stability.
Characteristics of the distribution stage:
Dealer distribution often occurs during market frenzy when investors blindly chase price increases. Typical characteristics include: high volume stagnation at high levels (volume increases but price doesn’t rise); price falls under good news; patterns such as long upper shadows and engulfing bearish candles appear.
Dealers will try to maintain price stability during distribution to attract enough buyers. They often create a false impression of active trading through wash trading, leading investors to mistakenly believe that the market is still ongoing.
04 Combining these indicators to improve judgment accuracy
Single indicators always have limitations. Combining the following indicators can improve judgment accuracy.
OBV indicator: Also known as the energy tide, it quantifies volume into a trend line, combined with the price trend chart, to infer market sentiment from the relationship between price changes and volume increases and decreases.
When OBV diverges from price trends, it often signals that the trend may reverse.
Support and resistance levels: Observe whether the price is near key support or resistance levels. Bullish signals are more reliable near important support levels, while bearish signals are more worth paying attention to near important resistance levels.
Market environment: In a bull market, increasing volume during rises is a healthy signal; however, in a bear market, any increase in volume during rises may be a false rebound. The same volume-price relationship can have entirely different interpretations in different market conditions.
When watching the market next time, don’t just focus on the price fluctuations. Ask yourself: Does this rise have volume support? Is this sideways movement at a high or low level? Is the relationship between volume and price healthy or has divergence occurred? The answer is hidden in the dialogue between volume and price.
The market will never be without risk, but by understanding the volume-price暗语, at least we can avoid those obvious pitfalls. After all, in the cryptocurrency circle, 'surviving' is more important than 'making quick profits'.
Have you ever successfully avoided traps or captured opportunities through the price-volume relationship? Feel free to share your story in the comments section. Follow Ake to learn more first-hand information and cryptocurrency knowledge, precise points, and become your navigation in the cryptocurrency circle; learning is your greatest wealth!#加密市场反弹 #美联储降息 $ETH
