Average Daily Trading Volume (ADTV)

What Is the Average Daily Trading Volume (ADTV)?

The trading volume of a coin represents how actively it is being bought and sold by investors. Both large and small investors pay attention to these indicators when they make decisions since high turnover usually means that opportunities to buy or sell cryptocurrency at favorable prices are abundant at that time. When volume is low, traders see it as a warning sign that something could be wrong with the project’s business or performance. 

What Does Average Daily Trading Volume (ADTV) Tell You?

As mentioned earlier, the average daily trading volume is the number of coins traded in one day divided by the number of trading days in a given period. An average daily trading volume of 100,000 coins means that 100,000 coins were traded on average each day in the given period, even if some days in that period had only 500 coins traded.

How to Calculate A Day Trading Volume?

The formula is simple: 

For example, if 100,000 shares of XYZ Company are traded over 10 days, the average daily trading volume would be 10,000 shares per day. 

Understanding the Average Monthly Trading Volume

A higher monthly trading volume is generally a good sign for a project. An increase may indicate that investors are more interested in the coin, and it may be a good time to buy. Suppose a coin’s trading volume is significantly lower than it was during the same period a year or two ago. In that case, this could signify that investors are less interested in the project and its token now. The average monthly trading volume is calculated the same way as the daily trading volume. 

How to Use the Average Daily Trading Volume?

There are a set of reliable rules that may be used to assess the strength or weakness of a move when utilizing volume as a trading parameter. Avoiding weak market movements and joining stronger ones are the objectives. When attempting volume trading, the following recommendations can assist you in achieving your objectives. They are not absolute and, therefore, should not be applied in all circumstances, but they are a good general set of rules to bear in mind.

1. ADTV Aids in Validating a Trend

One of the most important signs of a rising market is typically increased volume. On the other hand, a rise in price accompanied by a fall in volume may indicate a lack of interest. 

Volume by itself is not a reliable indicator. For instance, a declined price with a high volume is a considerably stronger indicator.

2. Displays Bullish Indicators

Volume can be used as a trading technique to help you spot bullish signals. Let’s imagine that following a price decrease, one notices a rise in a coin’s volume. The price then temporarily rises and begins to decline as a result. When it drops the second time, it stays above its previous low, and the volume decreases as well. This suggests that the market is bullish.

Limitations of Average Daily Trading Volume

The trading volume provides a general indication of how active a coin is, but it doesn’t reveal much about the reasons behind that activity. For example, a coin with a high trading volume could be due to short-term speculation or a long-term investment. It doesn’t indicate which type of activity is driving it. 

Trading volume can vary due to a number of factors, including the time of year (it tends to decrease during the holidays and increase again in January), the economy’s general state and the project’s overall health. A sudden, dramatic change in trading volume may be because of one of these factors, but it could also be a sign of something more serious.