In this article, we will discuss the main indicators of the cryptocurrency market such as liquidity, volume, and volatility, as well as the concept of open interest. This information will help you understand the relationship between sellers and buyers as expressed in statistical form. These indicators determine in which direction and how quickly the price of an asset changes.

Market Characteristics: Volume, Liquidity, Volatility

Liquidity is the combination of the speed at which new trades appear, the volume of orders, the size of positions, the number of orders and trades, as well as the number of participants. If these parameters are relatively high, then the pair you have chosen is liquid and you can trade it comfortably.

What does the concept of liquidity mean in practice? Liquidity allows you to understand what amount and on which pair you can enter an asset, as well as determine a strategy for accumulating or selling a large position. If the liquidity of a pair is too low, even a small purchase amount can cause an involuntary "pump", as a result of which other participants will "offload" their reserves onto you. The outcome of such a trade will be an initial loss at the moment of your purchase, since your average entry price will be de facto higher than the market price.

Market volume is the total amount of trades made over a certain period of time. A red candle on the volume indicator in TradingView means sales dominate, a green one means purchases dominate.

Let’s consider two examples of volume analysis:

Volatility is the maximum change ("fluctuation") in price over a selected period of time.

The main advantage of the cryptocurrency market is high volatility, which allows for “short-term” trades with high potential profit (and losses, he-he;)).

Open Interest

Open interest is calculated by adding all contracts from open trades and subtracting contracts when a trade is closed. There is no difference between long (buy) and short (sell) positions when calculating open interest; contracts for both are summed. Only contracts from closed positions are subtracted. As current positions are closed, open interest decreases.

Open interest and volume are interrelated concepts, but the key difference is that volume counts all contracts that have been bought and sold, while open interest only counts those contracts that remain open on the market.

Open interest is used as an indicator to determine market sentiment and the strength of price trends:

You can view open interest data on Binance (link).

Conclusion

Let’s summarize the two main conclusions for this lesson:

Thank you for your attention!