Master-Class on Cumulative Volume Delta (CVD)
After reading this thread, you will understand:
1. What is Delta
2. Why does the market move.
3. How to identity exhaustion and absorption.
4. Using CVD to predict probable PA.
Websites used- Tradingview or Coinalyze
WHY DO THE PRICES MOVE?
Price on any LIQUID asset (99% of the time) moves just because of one reason, Supply and Demand.
The market participants want to buy and sell an asset, and their PERCEPTION towards the future price changes the price.
What are the types of orders?
Limit order - Advertises the price you want to buy/sell on orderbook. Prevents slippage, PASSIVE order that will only get filled if price moves there.
Market order - Buy/sell at the current offer price. AGGRESSIVE order filled immediately.
Limit Orderbook (LOB)
It's an open auction where buyers and sellers advertise their offers and bids.
What is delta?
Delta is the difference between the buys and sells executed at a certain price.
CVD Plots this Delta in a cumulative manner.
Positive CVD could mean Aggressive buyers and
Negative CVD could mean Aggressive sellers.
1. Delta is difference between Buy and sell orders executed at a Price.
2. Limit orders add liquidity (Passive Participants)
3. Market Orders remove liquidity
4. CVD Plots cumulative Delta Graphs.
5. We limit CVD usage to short term trading.
Now. How to trade using CVD?
Two of the most important concepts are Absorption and Exhaustion.
These look like a divergence between the price and the CVD line.
Let's dive deeper and look at examples.
Absorption: It means the market orders are being absorbed by the limit orders.
CVD makes new highs or lows. Price does not follow. This means passive limit orders absorbed aggressive market orders.
On the chart, it looks like a divergence.
This example above a higher high on CVD but a lower high on price.
Meaning Aggressive buying absorbed.
The next example shows how aggressive selling is absorbed.
Lower low on CVD, and price does not follow.
Whenever aggressive selling is absorbed, you can expect the price to go up.
Market orders are reducing and becoming smaller. Lack of interest.
-Price makes new highs/lows. CVD doesn’t follow.
This could be a reversal sign.
Example- Higher High in price but Lower High on CVD.
Could mean Aggressive buyers are exhausted.
The other example is on the opposite side, where aggressive sellers get exhausted, and the price moves up.
Here price makes a lower low, but CVD does not follow.
How to use CVD in case of Exhaustion and Absorption.
Exhausted sellers - Price could move up.
Exhausted buyers - Price could move down.
Pressure absorbed by buyers - Price could move up
Pressure absorbed by sellers - Price could move down
Hope this explains the concept of Delta, how to use CVD and Using CVD on your Day Trading.
I limit myself to trading with CVD only on the short term.
Hope this was helpful.
P. S. We are doing a trading Competition for 50K USD reward among 20 people Dollars and 20,000 dollars giveaway among 10 People.
Participate for free.
Link to Register- shorturl.at/jmnvS
Link for competition-
Thank you and lets meet again soon.