Volume Masterclass: For Traders

Most traders have the Volume Indicator just sitting at the bottom of their chart but have absolutely no idea how to use it. In this Volume Masterclass, you’ll learn how traders actually use volume to understand market activity.

I’m a former Prop Trader and have been trading Crypto for 8 years.

Thank you for taking time out of your day to read this article.

In exchange for your most valuable resource, I’m going to give you everything I know about using the Volume Indicator.

🤓 NOTE TO READER: This Volume Masterclass isn’t just going to be a bunch of theory. I’ve made sure to include real examples and tactical tips that you can implement in your trading today.

Here are the 5 Lessons you will get in this Article.

• Lesson 1: What is Volume
• Lesson 2: Who are the Players and what do they want? (Game Theory)
• Lesson 3: Intra-day Volume Filter
• Lesson 4: Volume Structure relative to Strategy Win-Rate %
• Lesson 5: Bonus Resources

🤓 NOTE TO READER: In this Volume Masterclass, I have done my very best to simplify each of these topics so they are easy to understand and apply in trading.

Let’s get started ↓

Lesson 1: What is Volume

Lesson 1 will cover the following:

• Limit + Market Orders
• The Volume calculation (hint: it’s just market orders)
• Where traders often get confused

Limit + Market Orders

Let me give some quick context first. There are 2 types of orders that a Trader can place on an exchange. ↓

• Limit Orders (maker): placing an order on the orderbook at a desired price. This is providing liquidity to an orderbook since you are advertising to sell X coins at Y price.
• Market Orders (taker): immediately executing an order against resting limit orders on the orderbook. The trader does not decide the price. The price that the order gets executed at will completely depend on what’s actually available on the orderbook. This is taking liquidity off the orderbook since your order will be “matched” with whoever is advertising to sell X coins at Y price.

The Volume calculation (hint: it’s just market orders)

Volume = total market orders (buys + sells) that came through

That’s it. It’s really that simple.

Where traders often get confused

🤔Confusion 1: “So how do limit orders get involved in volume? If trader1 market buys 1000 coins from trader2, that means 1000 coins executed as market buy and 1000 coins executed as limit sell. So is the volume 1000 or 2000?” -> Answer is 1000

Limit Orders are NOT involved in this calculation. ❌

It is ONLY Market Orders that went through. So the volume in the example above will just be 1000.

As explained in this Volume Masterclass, volume simply counts the total number of coins executed as market orders, because a trade only happens when a market order is filled.

• Example: If 0 coins were market bought or sold over 1 minute of time, then the volume will be 0 regardless of whatever is sitting on the orderbook in the form of limit orders.

🤔Confusion 2: “On TradingView I see red volume bars and green volume bars. Do the red bars mean sell volume and the green bars mean buy volume?”

This is probably the most common thing around Volume that Traders get confused by.

The Red/Green colors on the TradingView indicator are for AESTHETICS ONLY.

❗️TIP: this is why I personally have all my volume bars set to a black color, because it’s just a “counting tool”.

Whether it’s Red or Green literally makes NO DIFFERENCE to what actually happened in the volume.

• The volume bar will print as Red if the corresponding price candle just so happened to be Red.
• The volume bar will print as Green if the corresponding price candle just so happened to be Green.

🤔Confusion 3: “If the price went up, does that mean there were more Market Buys than Market Sells? If the price went down, does that mean there were more Market Sells than Market Buys?” -> Answer is “It depends”

• Most of the time limit buys and limit sells are fairly evenly distributed.
• So that means that “most of the time” when we see a red candle, it’s because more volume in market sells came through (which caused price to go down). The opposite is also true: “most of the time” when we see a green candle it’s because more volume in market buys came through.
• Big emphasis on “most of the time” because this is not always the case!
• If there is a LARGE IMBALANCE in the limit orders (e.g. significantly more limit sells available than limit buys), the price can drift down despite there being more market buys than market sells coming through. The opposite is also true. I will visualize this below ↓

SUMMARY OF LESSON 1: “What is Volume”

• Common confusions: Red/Green volume bars (TradingView) = purely cosmetic (match candle color). Treat volume as a count, not buy/sell labeling. Price up doesn’t always mean more Market Buys. Price can rise/fall with opposing market flow if the limit order book is imbalanced (e.g., more/less resting liquidity).
• Orders: Limit (maker): posts to book, provides liquidity (~0.02% fee). Market (taker): hits resting limits, removes liquidity (~0.06% fee).
• Volume = sum of executed market orders (buys + sells). Limits aren’t counted. If 1,000 coins are market-bought from limit sellers, volume = 1,000, not 2,000.

Lesson 2: Who are the Players and what do they want? (Game Theory)

Lesson 2 will cover the following:

• Defining “Game Theory”
• Defining “Positive Sum” and “Zero Sum” games.
• Who are the Market Participants (Players) and what do they want?
• Why this is relevant to us?

🤓NOTE TO READER: I promise to keep this lesson simple and easy to understand. I will only cover the absolute basics which I still think is quite valuable for Traders. I included this topic because I believe it’s worthwhile to think about “where is the volume actually coming from?”.

Defining “Game Theory”

As discussed in this Volume Masterclass, game theory studies how players make decisions when the outcome for each person depends on the actions of everyone else.

Why this is a relevant topic for Traders:

• There are lots of different players in the market and the decisions made by those players (enter/exit, buy/sell).
• All these players are acting in their own self-interest + these decisions will impact the market to some extent (low impact/medium impact/high impact).

The volume indicator can help give a some more context on the behavior of those players, specifically the intensity.

• Just looking at Price Action is nice
• Looking at Price Action + Volume together is nicer.

Defining “Positive Sum” and “Zero Sum” games.

Can you imagine trying to win at a game but you have no idea what the rules are or how it works? The chance that you’ll do well at playing it are going to be low.

It’s important to at least know what kind of game you are playing before you try to play to win.

Some games let everyone win together. Others only reward one side at the expense of the other.

Positive Sum Games (Traders are NOT playing this game) ❌:

• 💡Position Sum Games result in Wealth Creation
• A Positive Sum Game is when cooperation or innovation creates new value, expanding the “total opportunity” so that everyone can benefit.
• Examples: Business partnerships, New technology/tools being built.

Zero Sum Games (Traders ARE playing this game) ✅:

• 😈Zero Sum Games result in Wealth Transfer
• A Zero-Sum Game means the total “opportunity” stays the same. One player’s gain is another player’s loss.
• Examples: in Poker the chips don’t grow, they just change hands. In Chess there must be 1 winner and 1 loser.
• The goal here is to take advantage of the mistakes of others.
• Other Traders must lose in order for you to win.

🤓 NOTE TO READER: As part of this Volume Masterclass, below is a thread I wrote about different types of advantages traders can develop across multiple categories to win more than they lose over time ↓

Who are the Market Participants (Players) and what do they want?

In this Volume Masterclass, it’s important to understand who the players are in the market and what their objectives are when participating in the game.

“Know your enemy” – wise philosopher with a long beard.

Let’s break down the 3 main different types of market participants, what each of them want and what each of them really don’t want ↓

1 ) Exchanges

• They WANT Volume from market participants. More Volume = more fees generated.
• They DO NOT WANT exchange bugs/exploits with their platform.

2 ) Delta Neutral Traders:

• They WANT mis pricings to occur on exchanges so they can arbitrage prices between same/correlated products or payout mechanisms (e.g. points, funding rates, spreads etc.)
• They DON’T WANT spreads between similar products to expand after they enter a trade. (this would cause them to take on more risk and potentially close out at a large loss and/or liquidation)

3 ) Delta 1 (directional Traders):

• They WANT other traders to OPEN+CLOSE a trade after they enter a trade. (frontrunning order-flow)
• They DON’T WANT the direction of the trade to go in the opposite direction that they want.

If you are a Trader who is entering a trade at a specific price and you need the price to move in your preferred direction to a target, then you will be in the 3rd Category (Delta1).

Since my trading style is trading breakouts and reversals (betting on price moving up/down), then I also am in this category. MOST TRADERS are “Delta1 Traders”.

❗️ TIP: As explained in this Volume Masterclass, Delta (Δ) measures how much the price of your position changes when the underlying asset’s price moves. A delta-1 trader has full exposure to price movement, while a delta-neutral trader aims to maintain little to no net exposure.

Why this is relevant to us?

semi relevant tweet ↓

So we have a clear understanding of what it is that we want:

• We need other traders to open a position AFTER we open.
• We need other traders to close a position AFTER we open.

The common thing in both of these is “we need other traders”. Without other Traders entering or exiting, how is the market supposed to move?

This is why I need to be executing at places where I have at least ONE of the advantages of:

• Entering “slightly earlier” than a lot of Traders who are on the same side (which is a bit tricky because will need to frontrun levels and/or market buy directly into a level, contributing to attempting to break it)
• Counter Trading a large number of Traders who are on the opposite side of my trade (because if they are wrong, they’re going to help push the price in my favor).

Having these 2 things in the back of my mind helps me with choosing the levels that I want to trade at and also coming up with ideas to take advantage of Traders who took “bad trades”.

❗️ TIP: As highlighted in this Volume Masterclass, trading is ultimately a zero-sum game. You get paid from the mistakes of others, so understanding what mistakes occur, how they happen, and where they appear can lead to valuable trading ideas.

❗️TIP: The more money that is “stuck” in the “wrong side” , the more fuel this is to the fire. Closing out of a losing trade is compulsory if the price keeps moving against them. It will happen either with their stoploss or a liquidation, both of which help push further in 1 direction. The more wrong they are = the more upside potential you have in the trade.

Bonus Relevant Resource #1: ↓

Bonus Relevant Resource #2: ↓

❗️ TIP: As explained in this Volume Masterclass, the more volume executed at the extreme end of a fast spike, the more fuel there is for price to violently move back toward its origin.

SUMMARY OF LESSON 2: “Who are the Players and what do they want? (Game Theory)”

Trading is a zero sum game: one trader’s gain is another’s loss.

• Game Theory: Study of how players make decisions that affect each other.
• Positive Sum Games: Create new value (everyone can win).
• Zero Sum Games: Transfer value (one wins, one loses). Trading is this.

Market Players:

1. Exchanges: Want volume and fees.
2. Delta Neutral Traders: Want mispricings (arbitrage).
3. Delta 1 Traders (us): Want price to move in our direction.

Key Idea: As emphasized in this Volume Masterclass, price moves only when other traders open or close positions. You profit by acting before traders on the same side or by trading against those trapped on the wrong side.

👉 To increase our chance of performing well, we should deepen our understanding with who’s in the game, what they want and how to profit from their mistakes.

Lesson 3: Intra day Volume Filter

Lesson 3 will cover the following:

• Why I use a Volume Filter
• The actual Volume Filter I use
• Setting up the VolUSD indicator
• Chart Examples
• How a Volume filter impacts profitability

Why I use a Volume Filter

As mentioned earlier above, we need other Traders to trade against otherwise we won’t be able to make money.

If we’re trading in a coin which has literally no volume and no liquidity, we’re just going to be shooting ourselves in the foot.

❗️TIP: Liquidity = limit orders on the orderbook. High liquidity coin = lots of limit orders sitting in the orderbook. Low liquidity coin = very few (or small) limit orders sitting in the orderbook.

The actual Volume Filter I use

To prevent jumping into illiquid coins and getting stuck, I introduced the following Volume Filters ↓:

• If the average volume per 1 minute (based on the previous 60 bars) is less than $100,000 (on the Binance Perp), then I CANNOT trade the coin because it is not liquid enough.
• My maximum position size in a coin cannot be more than 50% of whatever the average 1 minute volume is.

The default volume indicator shows the number of contracts that is transacted, NOT the USD which is being transacted.

This is why I have switched from the default Volume (contracts) indicator to a Volume in USD (VolUSD) indicator. It makes life so much easier.

❗️TIP: “Volume in USD” = “the Volume in contracts” multiplied by the “Price”

Setting up the VolUSD indicator

Below I will show you the instructions of how to set up this indicator↓

Chart Examples

Below I’m going to share 2 chart examples.

• ✅Example #1 will be a coin which DOES MEET the volume criteria
• ❌Example #2 will be a coin which DOES NOT MEET the volume criteria

❗️ TIP: As discussed in this Volume Masterclass, even if I’m not executing trades on Binance, I still decide whether a coin is tradeable based on Binance’s volume since it leads the market in alt perpetual futures liquidity.

How a Volume filter impacts profitability

↑ Let me give some context to the image above

EV (expected value) per trade is where a Trader’s profits come from.

• There are 4 variables which make up the EV of a Trading Strategy.
• If we improve ANY of the 4 we can make EV go up.

I’m not going to go into detail on all four factors here. However, as explained in this Volume Masterclass, a volume filter specifically helps reduce the average slippage per trade.

If we keep literally everything the same in a trading system but just reduce the average slippage per trade, then the profitability of the strategy goes up.

SUMMARY OF LESSON 3: “Intra day Volume Filter”

Trading illiquid coins causes slippage and losses. A volume filter prevents that.

• Rule 1: Only trade coins with ≥ $100k avg 1 min volume (past 60 bars on Binance Perp).
• Rule 2: Max position = 50% of that average volume.
• Use the VolUSD indicator (volume × price) instead of default volume. It makes life so much easier.

Why it matters: Higher volume = lower slippage -> higher expected value (EV) per trade -> more profit.

🤓NOTE TO READER: Well done if you’ve made it this far. There are 2 more Lessons to go. More juicy stuff below ↓

Lesson 4: Volume Structure relative to Strategy Win Rate %

Lesson 4 will cover the following:

• Quick introduction to Momentum and Mean Reversion Trading
• Increasing/Decreasing Volume Cheat Sheet + Explanations
• Live Trade Examples

Quick introduction to Momentum and Mean Reversion Trading

When price comes into a level, there are only 2 things that we can bet on happening:

• “I bet the price will break through the level and keep going in that direction” – Momentum
• “I bet the price will bounce/reverse from the level and go in the opposite direction” – Mean Reversion

Having a basic understanding of both momentum and mean reversion can be helpful. This is because the Volume behaves differently for the best momentum trades when compared to the best mean reversion trades.

Increasing/Decreasing Volume Cheat Sheet + Explanations

Some quick context:

• The Best Momentum Trades = the Worst Mean Reversion Trades
• The Best Mean Reversion Trades = the Worst Momentum Trades
• This is because they are trading against each other in the same places.
• Therefore it is a Trader’s responsibility to think about the variables which can increase/decrease the probability that a support/resistance level Breaks or Bounces.

As explained in this Volume Masterclass, consistently increasing volume is good for momentum trades (breakouts) but unfavorable for mean reversion trades (reversals).

• If we remember what we want as Delta1 traders, we want other traders to OPEN a trade AFTER we have opened.
• If volume is consistently increasing over time, if the market conditions do not drastically change shortly after we enter we actually have a nice little advantage working in our favor here.
• I will try explain it using 2 extreme hypothetical examples below ↓

EXAMPLE 1: $150K of volume per candle (not increasing)

As explained in this Volume Masterclass, imagine that on the first 1-minute candle there are $100K in market buys and $50K in market sells, with an evenly distributed order book of limit buys and sells. If this exact flow continued for the next 60 candles without any change, the price would gradually drift upward, creating linear price growth.

The volume in this example would be $150K in every candle.

EXAMPLE 2: $150K of volume per candle BUT it is increasing by +11% per candle. (consistently increasing)

As explained in this Volume Masterclass, imagine that market sell volume increases by 1% on each subsequent candle, while market buy volume increases by 10%. If this pattern continues consistently for 60 candles, buying pressure will gradually dominate and push price higher.

Let’s also assume that the limit buy/sells are evenly distributed. Throughout those 60 candles, the size of the green candles would continue growing larger and larger. This would be exponential growth in price.

In a real trading environment the distribution of limit buys/sells and market buys/sells is always changing, but this concept still generally holds firm.

If you are entering a Momentum Trade (betting on the level to break), as long as there is no drastic change in the market conditions there will be an advantage with how price reacts to consistently increasing volume (especially if the market buys are increasing) .

🤓 NOTE TO READER: As discussed in this Volume Masterclass, if you use the TAPE (an aggregator of market orders across exchanges), here is a post I made that is highly relevant to this topic ↓

❗️TIP: There’s nothing “magical” with the Tape tool. It’s just a tool which makes Volume Data a little bit easier to visualize.

As explained in this Volume Masterclass, the reverse is also true. Decreasing volume is generally bad for breakout trades because fewer traders are participating, while it can be favorable for reversal setups.

If the volume is DECREASING after Traders have hit into a Breakout Trade, it means there are less and less people interested in the coin. This can cause the price to stall and naturally, out of impatience, some traders offload their position at breakeven.

• As more traders start offloading their position, the imbalance between buys/sells can start to shift which can cause the price to change direction.
• As more traders start to have their positions start going in the red, more panic and more start offloading (and reversal traders are piling in at the same time)…which can cause a cascade effect for price to completely reverse away from the level.

Here’s a post below where I have tried my best to visualize this ↓

Live Trade Examples 📈

Below I want to show some examples to help with learning and understanding this concept.

🤓 NOTE TO READER: In this Volume Masterclass, I’m intentionally cherry-picking examples. The goal isn’t the trade result but how volume behaves relative to the trade style (momentum or mean reversion).

Example 1: A Momentum Trade with Increasing Volume

^increasing volume over time is generally good for continuation

Example 2: A Mean Reversion Trade with Flat Volume

As discussed in this Volume Masterclass, decreasing volume is ideal when trading reversals. However, if the price action becomes very choppy, flat volume conditions can still support a valid reversal setup.

Example 3: Mean Reversion Trade with Decreasing Volume

After the big spike near 1:30 UTC, the volume gradually (and subtly) started decreasing.

Example 4: Momentum Trade with increasing volume

If you were to look at the “slope” of the Moving Average on top of the volume (the blue colored line), observe but its steep slope upwards.

When this is paired with “slow grindy staircase” price action it’s often a great sign for continuation in that same direction.

Example 5: Mean Reversion Trade with decreasing volume

After the big spike at 12:30 UTC the volume really started to dry out and rapidly decrease.

Once price finally got to the low of the day, there was a bit of a spike into it but price crawled back upwards shortly after.

Example 6: Momentum Trade with Increasing Volume

This is definitely one of the more extreme examples due to how severely the volume was increasing during that uptrend.

I believe it’s important not to think in “binaries” but rather in “continuums”.

• The volume IS increasing or IS NOT increasing(binary thinking, I don’t find this helpful) ❌
• The volume is increasing, but BY HOW MUCH is it increasing (continuum thinking) ✅

❗️TIP: The HIGHER THE INTENSITY of the volume increase = the STRONGER THE BREAKOUT

Example 7: Momentum Trade with increasing volume

This is another example where the volume was really wildly increasing while being paired with a really strong trend.

❗️ TIP: As highlighted in this Volume Masterclass, shallow pullbacks during a trend often signal strong momentum. In contrast, deep pullbacks usually indicate that the trend is weakening.

Example 8: Mean Reversion Trade with decreasing Volume

The volume was increasing as PEPE was violently selling off but after that bit final drop anear 03:00 UTC, the volume started dying out and the price action started getting quite choppy.

Then finally there was a random spike out of nowhere into a level and the volume dried out again, which is generally a good sign for me to go for the reversal.

🤓 NOTE TO READER: As emphasized in this Volume Masterclass, the examples above highlight that increasing volume is generally better for breakout trades, while decreasing or flat volume is more favorable for reversal setups.

Summary of Lesson 4: “Volume Structure relative to Strategy Win Rate %”

• Momentum trades: Betting that price breaks out -> easier with increasing volume.
• Mean reversion trades: Betting that price bounces/reverses -> easier with flat or decreasing volume.
• Increasing volume = strength for continuation (more wild activity).
• Decreasing volume = reversal potential (sign of exhaustion).

Reminder: Think in continuums, not binaries. The bigger the volume increase -> the stronger the breakout.

Lesson 5: Bonus Resources

In this last lesson I want to include a bunch of resources which are relevant to how I use the volume indicator with my intraday trading.

📚Bonus Resource #1: Avoiding trading coins which DO meet the volume criteria but actually have an illiquid order book

Sometimes there is wash trading happening in a coin which causes it to meet the volume criteria despite the orderbook not being thick enough.

An immediate red flag is if there is a large price movement WITHOUT a corresponding volume spike that’s paired with it.

As explained in this Volume Masterclass, this is a red flag because if price travels a large distance with very little volume executed, a large trade in that market could result in significant slippage.

We really want to avoid losing unnecessary money to slippage at all costs so it’s just better to stay away from these coins.

📚Bonus Resource #2: Early invalidation from volume dropping off while in an active trade

Some context:

• In X% of the trades that we take, the conditions while change while we are still in the active trade.
• It doesn’t mean that we did something wrong or timed the entry poorly, this is just an inevitable fact of trading.
• Sometimes a new big entity will enter (or exit) the coin which will change how the price action is behaving.
• No matter what style of strategy you have, this is unavoidable. Whenever this happens my goal is no longer about “trying to profit” but it switches to “how can I wiggle out of this trade for a small of a loss as possible.”

As mentioned earlier above in the article, increasing volume is a really great sign for Momentum because if the market conditions do not change, there is a really nice advantage to sitting in that trade because price can potentially go exponential.

However, as explained in this Volume Masterclass, if market conditions change, the trade should be abandoned as quickly as possible. One major signal of this change is when volume begins to drop sharply while you are still in an active position.

📚Bonus Resource #3: Some statistics on volume spikes

The sample size here is a bit low for this to really be considered “some real good juicy alpha” but I hope looking at these stats inspires you to do your own research on anomalies that can sometimes appear in the Volume.

It makes some logical sense that if you get a “big weird event” (it doesn’t have to just be volume anomalies, it can be anomalies in ANYTHING) happen in a coin, that you would also get “big weird price action” that follows.

Collecting the statistics on how many times that anomaly happened and if there are any recurring patterns that follow it can be quite helpful if you plan on Trading for a while.

📚Bonus Resource #4: Double check for news whenever you see enormous “relative change” in the Volume

If a coin is doing $10k/1min of volume and then suddenly it’s doing $1m/1min on average and CONSISTENTLY for several minutes in a row, this is a sign that BIG PLAYERS are entering this coin.

But it’s extremely rare for big players to start randomly throwing literal millions of dollars into an illiquid coin that was barely moving before, this often happens whenever there is some big news event related to that coin such as the Founder dumping his coins, the project getting hacked or some other big FUD.

I have found that if I can confirm that the news happens to be some kind of negative FUD that the coin really does feel like it’s on “easy mode” to play breakout shorts in.

• This is because there is a huge imbalance in both the limit buys/sells (the market makers themselves are more hesitant to quote big on the bid side)
• and there is a huge imbalance in the market buys/sells (huge player is hitting the sell button with size over and over again).
• For some reason I have found it so much easier to play on negative news than to play on positive news.

So in summary here: if I see a huge and consistent increase in the volume I always make sure to double check if there’s any news.

• if I can’t find any news, no big deal I’ll still trade the coin.
• If there IS news and it happens to be in sync with the direction of the price action, I’ll be even more aggressive with my trade by either going for wider targets and/or putting more risk on the trade.

Summary of Lesson 5: “Bonus Resources”

1. Avoid Fake Liquidity

• High volume ≠ always real liquidity.
• If price moves far with low volume -> illiquid, high slippage risk -> avoid.
• Check that large moves have matching volume spikes.

2. Early Exit on Volume Drop

• If in a breakout trade and volume drops sharply, market conditions changed.
• Exit early to minimize losses if conditions drastically change while in an active trade. Accept defeat and focus on “small loss, fast exit.”

3. Volume Spike Statistics

• Big volume spikes often precede big moves (big reversals OR big continuations).
• Example: BTC daily candles with 2× avg volume -> +1% avg return.
• Use volume anomalies (10× spikes, etc.) as data for trade ideas for your future testing.
• Think about anomalies in other datasets (not just volume) for coming up with and testing your own ideas.

4. Check for News

• Huge jumps in both volume and volatility often mean news just dropped.
• Try to confirm if some news really did drop before entry. If bearish news, breakout shorts are often easier to play.

👉 In short: Use volume to spot fake liquidity, detect early invalidation, study anomalies, and confirm news driven momentum.

CONCLUSION

Once again I would like to thank you for your time and attention as you pushed through this article.

I hope that Volume is no longer this random tool that sits at the bottom of your charts for no reason, but now is actually being put to use in your trades.

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