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How to use Cumulative Volume Delta

Hello everyone, today I am going to present you great indicator called cumulative volume delta. In order to gain an understanding of what CVD is first you need to understand each of its component parts. I'm pretty sure most of us here probably already know what cumulative and volume means. Cumulative basically is being the sum of something that increases or decreases in quantity with successive additions. Volume within trading being the total amount of contracts bought or sold.

What is delta


Delta measures the difference between the buyers and the sellers in the market. If we have a positive delta there are more buyers in the market, more people want to long the market and want the price to go up for a profit. Negative delta indicates there are more sellers in the market, more people want to short the market and want the price to go down the profit.

Basically, these are the aggressive participants. The participants are moving price by making market orders. So you have limit orders, you have market
orders - these are the people buying and selling at market, so within each candle, there will be a difference between the buyers and sellers and this is what your delta is. For example, a candle had 100 million dollars of contracts bought and 40 million dollars of contracts sold within this one candle which gives us a delta of plus 60 million

What is Cumulative Volume Delta (CVD)


Cumulative volume delta measures the effectiveness of buyers and sellers actions by looking at volume and delta we can gain an understanding of what buyers and sellers are doing at market and see how effective their actions are at moving price. When aggressive participants are not being effective divergence appears showing a loss of momentum or a sign of weakness which we as traders can profit from.

CVD Divergences


First of all, you have your lack of participants. This happens when price is trending upwards or downwards but CVD is not following the move. This shows that there is a lack of aggressive participants and can be a sign of exhaustion or weakness. Examples:


The other form is absorption. Absorption is when CVD is making higher highs or lower lows, but price is not following aggressive participants are attempting to move the market but price is being absorbed by limit orders. Examples:



How these two divergences work and the way that you can gain an edge by trading this is if you can spot a sign of weakness early. The great thing about cumulative volume delta is unlike other oscillators that tend to lag behind price, because they need to wait for a candle to close in order to form, CVD is always there it is taking into account every single contract bought and sold and you can know as it happens. When these divergences form you can see them in real-time. There is no lag. It is a leading indicator that helps you to gain an advantage early on the market to see when a trend is reaching a point of exhaustion or even when there is strength in the market.

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Fizz on my Jayce
Fizz on my Jayce

Crypto trader & Investor. I show my opinions, trading tips, and nothing is financial advice.

Fizz on my Jayce
Fizz on my Jayce

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