Transaction volume represents the total number of transactions of a cryptocurrency traded within a specified time period. High transaction volume often indicates higher liquidity in the market. A more liquid market is generally considered favourable for trading, as it reduces the impact on prices of large transactions.
However, transaction volume is closely tied to market volatility, since higher volume usually accompanies periods of increased price volatility, while low volume may precede periods of consolidation or decreased volatility.
Changes in transaction volume can reflect shifts in market sentiment, as well. For example, a sudden surge in volume might suggest a change in sentiment or the arrival of new information impacting the market. Analysts often use transaction volume to confirm trends identified through price analysis.
