Glossary

Easy

The average daily trading volume (ADTV) of stock or crypto is the number of shares/coins traded in one day.

‍The average daily trading volume (ADTV) of stock or crypto is the number of shares/coins traded in one day. It is calculated by dividing the total number of shares/coins traded over a period by the number of trading days. It gives you a general sense of how active the market for a given cryptocurrency is.

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.

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.

A higher average daily trading volume indicates that there is strong investor interest in a particular project. If a cryptocurrency has a low trading volume, it may be a sign that investors are losing interest. or there’s something fundamentally wrong with the project. Investors who are worried about low trading volumes can consider diversifying their portfolios by trading in other projects to reduce their risk.

## 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.

## What Does the ADTV Reveal?

### Number of Potential Stakeholders

ADTV reveals the number of potential stakeholders in a specific stock. A high ADTV would suggest that many parties are interested in the stock and are committed to a position. It also shows that an asset is less volatile, has narrower spreads, and is more competitive. They are less volatile in the case of a high average daily trading volume because large trades have to be made to move the price in a positive direction. This high average daily trading volume does not translate to large price moves for the stock.

### Price Levels

The daily trading average volume also highlights the price levels and whether they can offer support or resistance for a stock. A declining value means demand is decreasing, but it is useful as when higher volume returns, it's linked with a strong price increase. Also, if a stock has been declining for a long time and suddenly rises with an increase in trading volume, it might indicate a large investment like that made by a mutual or hedge fund. For instance, suppose that the 60-day ADTV for a specific stock is approximately 700,000 shares per day. Assume that the share price increases from \$50 to \$90 over several months. Then, as the share price approaches and reaches \$90, it sells off sharply and falls back to \$80 when the trading volume is 1,500,000 shares, approximately twice the mean value. In this case, \$90 represents price resistance before the sharp decrease.

### Liquidity of a Stock

ADTV is also a key indicator of the liquidity of a stock. Liquidity is crucial as it influences a party's bid and shows the ease of entering or exiting a trading position in the stock at a desired price (low bid-ask spread).

### Price

Average daily trading volume is also used to analyze a stock's price. If the price of a stock is rangebound and if it moves beyond a level of support or resistance that it has struggled to move about in the past (breakout), the increasing volume will verify the breakout. Low volume may indicate a failure of the breakout.

### Share Price Movement

ADTV is also an indicator of the share price movement. Volumes usually rise during price fluctuations. If the volume isn’t rising, it indicates a lack of interest in the stock that fluctuates the price. For instance, when the stock price increases significantly in an uptrend, the volume will rise too.

## 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.