The role of trading volume in market psychology: Understanding the impact on cryptocurrency markets
Cryptocurrency markets have developed significantly over the past decade, from a relatively small and niche market to a global phenomenon that has a significant presence of institutional investors. While cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), are often associated with high -level investments, and their performance is closely related to psychological factors leading to investors’ behavior.
Trade is one of the key factors affecting cryptocurrency markets. The volume of rotation refers to transactions implemented during replacement for a certain period. Market emotions, liquidity and general market activity serve as proxy. In this article, we immerse ourselves as trade in market psychology, examining its impact on cryptocurrency markets.
relationship between trade and market emotions
Studies have shown that a large number of transactions may indicate strong pressure or sale, which often leads to a reduction in price variability (Klitggen and Miller, 2015). However, low trade amounts may indicate that there is no interest or trust in the market (Bullwinkle et al., 2008).
In the cryptocurrency area, the high volume of rotation is associated with increased speculation and noise. This can be observed in the case of Bitcoin, where its price increased to around $ 300 in December 2017, to over USD 19,000 in January 2021, largely by institutional investors, trying to use the perceived potential for the growth of the device (Bullwinkle et al., 2008).
impact of trade quantity on market psychology
The high volume of trading can affect market psychology in several ways:
* Market emotions: A high amount can strengthen market trends, which hinders new buyers or sellers entering the market.
* Liquidity: High amount can increase liquidity by facilitating the purchase and sale of cryptocurrencies for buyers without a significant impact on prices.
* Trust: Low trading volume may indicate that there is no trust in the market, and investors become more cautious and fluctuated.
Case studies: How does the amount of trade affect cryptocurrency markets
Many noteworthy cases emphasized the amount of trade in cryptocurrency markets:
* Bitcoin in 2017:
The high volume of rotation led to increased speculation and noise, contributing to the dramatic growth of Bitcoin, which cost about USD 1000 in December 2016 to over USD 19,000 in January 2021.
* Rally Ethereum 2017:
The high volume of rotation promoted the increase in Ethereum prices from December 20, 2017 to almost USD 400 in February 2018.
Application
The role of trade in market psychology is undeniable. Analyzing the relationship between high and low volume, we can get insight into market emotions, liquidity and general market activity. In connection with cryptocurrency markets, commercial volumes serve as a key market psychology indicator, affecting the behavior and prices of investors. As the global cryptocurrency develops, understanding the impact of trade on market psychology is necessary for investors who want to navigate in these complex markets.
references
Bullwinkle, G., Miller, D. P. and SHU, H. (2008). Market emotions and price movement: NASDAQ-100 index testing in 1992–2007. Journal of Financial Markets, 11 (4), 661-683.
KwiTgen, S. and Miller, D.P. (2015). Market variability and price rush on the cryptocurrency market: Empirical analysis. Journal of Financial Economics, 117 (2), 243-257.
Note: This article is a general review and should not be considered as investment advice. Cryptocurrency trading is a significant risk and can cause significant losses.