Average Daily Trading Volume (ADTV)

The number of shares/coins traded in one day is referred to as the average daily trading volume (ADTV) of a stock or crypto.


What Does the ADTV Reveal?

Number of Potential Stakeholders

ADTV reveals the number of potential stakeholders in a specific stock. A high ADTV would suggest that many parties are interested in the stock and are committed to a position. It also shows that an asset is less volatile, has narrower spreads, and is more competitive. They are less volatile in the case of a high average daily trading volume because large trades have to be made to move the price in a positive direction. This high average daily trading volume does not translate to large price moves for the stock. 

Price Levels

The daily trading average volume also highlights the price levels and whether they can offer support or resistance for a stock. A declining value means demand is decreasing, but it is useful as when higher volume returns, it’s linked with a strong price increase. Also, if a stock has been declining for a long time and suddenly rises with an increase in trading volume, it might indicate a large investment like that made by a mutual or hedge fund. For instance, suppose that the 60-day ADTV for a specific stock is approximately 700,000 shares per day. Assume that the share price increases from $50 to $90 over several months. Then, as the share price approaches and reaches $90, it sells off sharply and falls back to $80 when the trading volume is 1,500,000 shares, approximately twice the mean value. In this case, $90 represents price resistance before the sharp decrease. 

Liquidity of a Stock

ADTV is also a key indicator of the liquidity of a stock. Liquidity is crucial as it influences a party’s bid and shows the ease of entering or exiting a trading position in the stock at a desired price (low bid-ask spread). 

Price

Average daily trading volume is also used to analyze a stock’s price. If the price of a stock is rangebound and if it moves beyond a level of support or resistance that it has struggled to move about in the past (breakout), the increasing volume will verify the breakout. Low volume may indicate a failure of the breakout. 

Share Price Movement

ADTV is also an indicator of the share price movement. Volumes usually rise during price fluctuations. If the volume isn’t rising, it indicates a lack of interest in the stock that fluctuates the price. For instance, when the stock price increases significantly in an uptrend, the volume will rise too. 

Limitations of Average Daily Trading Volume

The trading volume provides a general indication of how active a coin is, but it doesn’t reveal much about the reasons behind that activity. For example, a coin with a high trading volume could be due to short-term speculation or a long-term investment. It doesn’t indicate which type of activity is driving it. 

Trading volume can vary due to a number of factors, including the time of year (it tends to decrease during the holidays and increase again in January), the economy’s general state and the project’s overall health. A sudden, dramatic change in trading volume may be because of one of these factors, but it could also be a sign of something more serious.