Hair density refers to the amount of hair your client has. Hair density is an important factor in highlights and hair coloring in general. If clients have thin or fine hair, you will need to apply a thin weave and few foils. If you apply any more than this, your client will end up completely blonde.
On the other end of the spectrum, clients with thick or medium hair will require a heavy weave and lots of foil to create natural highlights. Using less than this may result in no difference to the overall hair color at all.
