Trading Terms You Must Know

Successful trading does not necessarily begin with price chart pattern analysis and indicator evaluation, but rather with understanding the basic principles and terms of the trade. Grasping the real implications and meaning behind terminology like a crypto token’s trading volume, its inflow or outflow from exchanges, and the general market sentiment can be vital for traders of all kinds as they can help boost price prediction accuracy by a hefty margin. 

Why trading terms are important to understand

Trading is complex and there are countless variables that influence its overall success. The basic principle that successful traders tend to follow is quite simple: if trading was an equation with many unknown variables, the goal would be to reveal as many of those variables as possible to make the outcome as accurate as it can be. Terms such as token trading volume, or market sentiment, are also parts of this equation, thus taking them into account at the right time could boost results at the end of the day.

What is crypto asset trading volume?

Let’s begin by an important, yet mostly overlooked metric that is often classified as crucial information. Crypto asset trading volume refers to the overall amount the given token traded for in a certain timeframe. Trading volume does not specify the percentage of the trading volume for buying and selling, but rather aggregates the two into one number. Considering the trading volume is important, as it can reveal how much are investors buying or selling a given token. For instance, if the trading volume is on the rise in a bull market, we can assume that prices will rise, too, as it’s probable that most of the trading volume increase came from buying. On the other hand, if the trading volume increases during a downtrend, it’s likely that the drop will continue as investors are liquidating their positions, in other words, selling their tokens.

What crypto inflow and outflow mean

Another metric that can share important insights with traders is called asset inflow, or outflow, from exchanges. This is essentially a number that shows how many crypto tokens of a given kind were moved to or from exchanges in general. The way this is tracked is quite straightforward: exchange wallets are trackable addresses, and there are sites that monitor the transactions from those purely online wallets to private storage.

Crypto inflow and outflow are really underestimated metrics and unfortunately most investors don’t even consider them, despite the fact that they can indicate the strengthening or weakening of market conditions. For instance, if the overall token inflow to exchanges is high, it can be assumed that holders are moving their crypto to sell it, otherwise they would keep it in their private wallets. However, if crypto tokens are flowing out of exchanges in great quantities, it can be predicted that the reason behind the outflow is trader’s plans to hold and not to sell the assets. Naturally, if most traders sell, prices are likely to drop soon after the inflow boost, and vice-versa, when most traders move their assets off of exchanges, prices will likely rise or stagnate.

Market sentiment

This is a metric that translates the general feeling of investors and traders into numbers ranging from 1-100, with higher numbers signaling positive sentiment, and lower amounts indicating negative outlook. Market sentiment is important, as it can support predictions about bull or bear markets. For example, if the sentiment of investors moves from Extreme fear towards Fear or Neutral, we can assume that prices will improve as well. The easiest and most commonly used tool to track market sentiment is the Crypto Fear and Greed Index.

Final remarks

Successful trading comprises many variables, and the more we know, the better our chances are. Terms like token trading volume, inflow and outflow from exchanges, and market sentiment can make all the difference, yet not many traders are taking advantage of them. Next time when you’re unsure about your prediction, consider taking a look at some of these metrics and see whether they will back or disapprove your idea about the next price movement.