Average Daily Trading Volume (ADTV)

Understanding Average Daily Trading Volume (ADTV)

The average daily trading volume (ADTV) refers to the number of shares or coins traded in a particular asset within a day.

It is calculated by dividing the total number of shares or coins traded over a specific period by the number of trading days.

ADTV indicates the level of activity and liquidity in the market for a given cryptocurrency or stock.

Investors, both large and small, pay attention to the average daily trading volume as it helps them gauge the level of investor interest and participation in a particular project or asset.

Higher trading volumes indicate strong investor interest and suggest that there may be more opportunities for buying or selling the cryptocurrency at favorable prices.

Conversely, low trading volumes may raise concerns about waning investor interest or potential issues with the project.

Average Daily Trading Volume (ADTV)
Average Daily Trading Volume (ADTV) explained | Source: Capital.com

What Average Daily Trading Volume (ADTV) Tells You

The ADTV reflects the average number of coins or shares traded daily over a given period, even if the trading volume fluctuates significantly on different days.

A higher ADTV signifies robust investor interest in a specific project, while a lower ADTV may indicate declining interest or potential concerns.

Investors who observe low trading volumes may consider diversifying their portfolios by exploring other projects to mitigate risks associated with lower liquidity.

Understanding Average Monthly Trading Volume

A higher monthly trading volume is generally positive for a project, indicating increased investor interest and potentially favorable buying conditions.

Conversely, if a coin‘s trading volume is significantly lower compared to the same period in previous years, it could signal decreased investor interest in the project and its token.

The average monthly trading volume is calculated using the same approach as the daily trading volume.

How to Use Average Daily Trading Volume

When utilizing volume as a trading parameter, some reliable rules can assist in assessing the strength or weakness of a move.

The objective is to avoid weak market movements and participate in stronger ones.

While these recommendations are not absolute and should not be applied in all circumstances, they provide a valuable set of guidelines:

  1. ADTV Aids in Validating a Trend: In a rising market, increased volume is typically one of the significant signs. Conversely, if the price rises accompanied by a decrease in volume, it may indicate a lack of interest. Volume alone is not a reliable indicator, but a declining price with high volume is a stronger signal.
  2. Displays Bullish Indicators: Volume can be used as a trading technique to identify bullish signals. For example, suppose a coin experiences a price decrease followed by a rise in volume, and then the price temporarily increases before declining again, if the subsequent drop remains above the previous low and the volume decreases. In that case, it may suggest a bullish market.

Limitations of Average Daily Trading Volume

While ADTV provides insight into the market activity level, it does not reveal the reasons behind that activity.

It does not distinguish between short-term speculation and long-term investment.

Other factors, such as the time of year, overall economic conditions, and the project’s health, can also impact trading volumes.