In this Indicators & Technical Analysis course, we’re going to cover the Cumulative Volume Delta, or CVD Trading, and how to use it to act consistently across the financial markets — the crypto markets included!
When you take a fresh look at the markets, Japanese candlestick patterns and price action can look messy, even completely random — especially when it comes to the crypto market, right?!
However, at a deeper level, and as you gain experience in the markets, you’ll find there’s always a very good explanation hiding underneath. Depending on the trading style, the time horizon, the tools and even the technical indicators, the price chart, and so on, are essential for Price Action traders and analysts.
Volume Analysis and Price Action Are Complementary!
Since Price Action is a complete representation of all the fundamental and/or technical events affecting a tradable asset. Unfortunately, it isn’t enough just to learn the ebb and flow of price action. You have to go further when the markets show complex or seemingly “disorderly” behavior.
With even a little experience, any trader can notice that volume is a valuable tool that offers excellent insight; in fact, it’s essential to look at it more closely in order to anticipate major moves.
Pure Price Action is mainly aligned with supply and demand dynamics. The greater the supply, the higher the price, and vice versa. So far, nothing complicated, right?!
At any given moment, the price of an asset — whether it’s the XRP price, Bitcoin or any other coin — is at equilibrium. It’s a price the market has unanimously recognized as fair at a given moment in time!
To go further, every trader must analyze volume with whichever technical indicator, or indicators, suit them best!
Analyzing Volume Gives You an Undeniable Edge!
The great advantage of analyzing volume is that you get it in real time.
Not only is it available in real time, but it can also give you a sense of the trading strategy used by the biggest wallets — and therefore the market leaders (see the Composite Operator / Wyckoff concept)! And yes, in case you had any doubts, retail traders have never set the direction of a market!
There are many volume-based indicators. Regardless of your experience, a thorough understanding of these volume-based indicators is essential.
Among them, the Cumulative Volume Delta, or CVD!
How to Find the CVD
1. Go to Coinalyze and create a free account by entering an email, a password and a username. It’s completely free; they do have a paid version that costs a few dollars, but it isn’t essential.
2. Click on the name of the coin you’re interested in | highlighted in blue
3. Once you land on the page of the coin you want to analyze, you’ll notice you can compare the price directly against 3 technical indicators (which I particularly like). They are:
- Open Interest
- Funding Rate
- Liquidations
4. Once you’ve set the indicator you want to compare against price and the CVD, all that’s left is to find the CVD in the list of indicators!
And here’s the result!
What Is the Cumulative Volume Delta? | Definition
Delta: Definition
To understand what this indicator does, you first need to understand what a “delta” is.
Simply put, a delta is the difference between buy and sell volume within a period or a candle: 1 day, 1 hour, 2 hours, 15 minutes, and so on.
On the chart above, the green bars represent buy volume while the red bars represent sell volume.
The delta can be positive (buy volume is higher than sell volume), negative (buy volume is lower than sell volume) or zero (buy volume equals sell volume).
Cumulative Volume Delta: Definition
The Cumulative Volume Delta, or CVD, indicator is based on these deltas. It starts from an origin bar specified by the user and successively cumulates the deltas.
What’s interesting about the CVD is that you’re free to specify the origin/starting bar, and therefore the accumulation period of your choice. Here’s how the CVD is calculated.
For example, if you specify 10 as the origin bar, then:
CVD at bar 10 = delta at bar 10
CVD at bar 9 = delta at bar 10 + delta at bar 9
CVD at bar 8 = delta at bar 10 + delta at bar 9 + delta at bar 8
… and so on
If you want the CVD to start from the very first bar, simply enter “0” as the origin bar.
Here’s an example of the CVD on the BTC/USD pair (90)
For any trader, this is a real asset. If the CVD line slopes down, it means there are more active sellers because demand for the asset is falling. This is generally a sell signal, and the trader should look for sell signals.
Conversely, if the CVD curve is rising, it means there’s more demand for the asset.
When Can the CVD Help You Make the Difference?!
The CVD, as it is, sums up the activity of market participants. By highlighting the relationship between buyers and sellers in a space plagued by market manipulation, traders gain a head start.
Be careful, though: the indicator is well suited to scalping and day trading. It will be counter-intuitive to use this indicator for swing trading.
Often, the number of buy and sell orders is balanced on higher timeframes, and using the CVD indicator on those timeframes might offer no actionable value to traders.
For optimal results, it’s recommended to enable the CVD indicator on timeframes of 5 to 30 minutes.
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Interpreting the Cumulative Volume Delta
Over a (limited) timeframe, you can see an imbalance tilting toward BTC buyers after watching a large imbalance on the sell side get absorbed. From that point, you can see the CVD curve turn back up. In this example, there was a really nice long scalp to take… For a moment, buyers clearly took back the upper hand!
Finding Confluence with Other Indicators
A quick reminder: an indicator read on its own has no value!
So the best approach is to combine the CVD with other indicators before making a decision that can actually make sense. For example, you can use the CVD with stochastic indicators.
But the choice is yours. There are thousands of indicators to choose from. Personally, I’ve gotten into the habit of comparing it with the RSI. This gives fairly reliable sell and buy signals when I add them to my Price Action analysis.
Building combinations will let you filter out the “noise” of the financial markets you’re interested in!
Cumulative Volume Delta | Conclusion & Verdict
It’s essential to understand how your indicators work in order to interpret them. The same goes for the CVD — there’s no secret to it!
When the market is rising, the CVD increases and the line shows a positive slope.
Conversely, a falling CVD means sellers are in control, which the line will show with a negative slope.
When it’s flat, the market is probably in an accumulation or distribution phase. That means neither buyers nor sellers are in control of the situation.
In that case, it’s better to stay away from this data until the CVD shows a significant change. When you have this setup in front of you, it’s better to favor another approach that lets you pick up clues of a
As a reminder, the Cumulative Volume Delta can be found on Coinalyze and if you like this tool, I invite you to check out the guide I wrote to help you get to grips with Coinalyze !
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