Liquidity and volatility
When does heavy trading go with wild price swings instead of steadying the market?
In plain words
Liquidity is how much can be traded without moving the price, often read through trading volume. Volatility is the size of the price swings. In practice they often rise together: heavy volume and wide swings appear in the same weeks, so more activity does not always mean smoother prices.
Why it matters
Traders often assume that more trading means tighter, calmer markets. When volume and volatility climb together, slippage, stop distances and position risk all grow at the same time, so the cost of being wrong rises alongside the apparent liquidity.
In a real week: ETH, week of 27 July 2020
In the week of 27 July 2020, ETH traded 3.18 billion dollars of volume, 3.09 times its prior 12-week average, and its price range was 35.96%. It rose 19.74% from open to close, with realised volatility at 116.3% a year and a largest single hourly move of -8.65% at 04:00 UTC on Sunday 2 August.
A common mistake
Reading high volume as a sign of calm, deep markets. Volume records how much traded, not how little the price moved while it traded.