Volume Delta (CVD)


Volume Delta (CVD), or Cumulative Volume Delta, is an advanced order flow indicator widely used in trading. It offers insights into market pressure by calculating the difference between buy volume and sell volume. Essentially, Volume Delta = Buy Volume - Sell Volume. This indicator is available in several variations, each serving different analytical needs:

  1. Volume Delta: Measures volume delta at each candlestick for a single exchange.

  2. Volume Delta [Aggregated]: Similar to the first, but aggregates data across all supported exchanges.

  3. Volume Delta [Cumulative] (CVD): Accumulates the volume delta over a specified lookback period for a single exchange.

  4. Volume Delta [Aggregated Cumulative]: Like CVD, but aggregates across all exchanges.

Where Can I Find This?

You can access the Volume Delta indicator on the Main Chart product under the Orderflow & Open Interest indicators. There are four variations of this indicator:

  • Volume Delta: Calculated at each candlestick and for a single selected exchange

  • Volume Delta [Aggregated]: Calculated at each candlestick and aggregated across all supported exchanges

  • Volume Delta [Cumulative]: The sum of volume delta over a specified lookback and for a single selected exchange (also known as CVD or Cumulative Volume Delta)

  • Volume Delta [Aggregated Cumulative]: The sum of volume delta over a specified lookback, aggregated across all supported exchanges (also known as aggregated CVD)

Using CVD in Trading

CVD is a potent tool for various analytical purposes:

  • Identifying Buying/Selling Pressure: A positive CVD suggests dominant buying pressure, while a negative CVD indicates selling pressure.

  • Spotting Potential Turning Points: Abrupt changes in the CVD trend might signal market reversals.

  • Determining Market Momentum: Consistently positive and rising CVD lines can indicate a strong bullish trend.

Lookback Period in CVD

The lookback period in CVD is crucial. It determines the number of bars considered for calculating buying and selling volumes. A longer lookback gives a broader market trend view, while shorter periods respond quicker to market changes.

Filtering by Trade Sizes

CVD analysis can be refined by filtering based on trade sizes. This can highlight activities of specific trader groups like institutions or retail traders. For instance, a rise in CVD with predominant selling by institutional traders can signal bearish trends, while the opposite might suggest bullish trends driven by retail speculation.

Trade Size Buckets

CVD can be displayed for various trade size buckets. Users can choose from ranges like 0 to 100, 1k to 100k, and so on, up to 'Infinity'. This feature allows traders to analyze market behavior in different segments:

  • Small Trades (e.g., 0 to 100): Reflects retail trader activity.

  • Medium Trades (e.g., 1k to 10k): May represent more committed retail traders or smaller institutional activities.

  • Large Trades (e.g., 100k to 1m): Typically indicates institutional trading, providing insights into professional market movements.

  • Very Large Trades (e.g., 10m to Infinity): Suggests major institutional involvement, potentially signaling significant market shifts.

Divergences in Trade Size Buckets

Understanding divergences between different trade size buckets can be crucial for traders. For example:

  • Small Sizes Increasing While Large Sizes Decreasing: If the CVD for small trade sizes (e.g., 0 to 1k) is increasing while it's decreasing for large trade sizes (e.g., 100k to 1m), it could indicate that retail traders are driving the market up while institutions might be distributing or selling their positions. Such a divergence often suggests a potential market top, where retail enthusiasm is high, but professional players are exiting their positions.

Identifying Volume Concentration by Bucket Sizes

Each trade size bucket in CVD also helps in determining where the majority of trading volume is originating and what proportion of the total volume each bucket contributes. This analysis is vital for several reasons:

  • Large% of Volume in Small Sizes: A significant percentage of volume in smaller trade sizes might suggest a retail-driven market, often associated with speculative trading or hype.

  • Dominance in Medium to Large Sizes: When the bulk of trading volume lies in medium to large sizes, it could indicate a more balanced market with both retail and institutional involvement.

  • Major Volume in Very Large Sizes: A market where a large proportion of the volume comes from the very large size bucket (e.g., 10m to Infinity) could signify heavy institutional influence, possibly leading to more stable and less volatile market movements.

Practical Use Case

Consider a scenario where market prices are rising, but the CVD for small trade sizes is significantly increasing while the CVD for large trade sizes is steadily decreasing. This divergence could be interpreted as a red flag for bullish traders, as it may suggest that while prices are driven higher by retail traders' optimism and smaller trades, institutional traders (reflected in large trade sizes) are possibly taking profits or reducing their positions. Such a situation could lead to a potential reversal if retail momentum wanes and institutional selling pressure dominates.

In summary, analyzing CVD across different trade size buckets not only provides a clearer picture of the current market sentiment but also helps in predicting potential future movements based on the divergence in trading behaviors among different trader groups. This level of analysis is essential for traders looking to understand the depth and nuances of market dynamics.

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