Cumulative Volume Delta (CVD) is a volume-based trading indicator that provides a visual representation of market buying and selling pressure by calculating the difference in traded volumes between the two sides. It is an expanded and improved version of the Volume Delta indicator, which can better assist traders in making decisions in the market.
The Cumulative Volume Delta (CVD) indicator should not be confused with the Volume Index or ordinary traded volume indicators. Most volume indicators show total traded volume, without distinguishing between buying and selling volume.
CVD visualizes the cumulative Delta value by adding the Delta values of each price bar and plotting the value underneath the price chart. If the Delta value is greater than 0, it indicates that buying pressure is greater than selling pressure, and the price may rise. If the Delta value is less than 0, it indicates that selling pressure is greater than buying pressure, and the price may fall. It can also be equal to 0 if buying and selling volume are equal.
The price movements of cryptocurrency charts, such as BTC/USDT and ETH/USDT, are determined by the volume of funds flowing in and out. When a currency is faced with more buying pressure, its price will rise. Conversely, when there is selling pressure, the price will fall. If traders can obtain data showing the cumulative traded volume inflow and outflow of cryptocurrencies, they can better predict future price movements.
The "delta" in the CVD indicator represents the current market trend. Depending on the strength of buying or selling pressure, delta can be green or red. The difference between buying and selling volume can be displayed on charts for 1 week, 1 day, 4 hours, 1 hour, and 15 minutes.
If the delta line is marked in green, it indicates that buying volume is greater than selling volume within the selected time frame. If the delta is marked in red, it indicates that selling volume exceeds buying volume.
The CVD indicator is based on these delta values. Although the indicator starts from 0 (when buying and selling volume are equal), it can eventually reach 100,000 in any direction. Traders can adjust the indicator to gain an overview of price trends on both the micro and macro levels of a currency's history.
How to use it:
CVD can provide important reference information for traders in making trading decisions. Traders can use CVD to determine the overall trend of the market and use it to confirm market bottoms or tops. In addition, CVD can also be used for managing trading positions. When holding positions, traders can observe the high correlation between price and CVD to judge whether the market has strong buying or selling power. If the price rises or falls to a new high or low, but CVD does not follow, this may be a signal of market reversal. Traders can also observe divergence signals on CVD, which means that when the price reaches a new high or low, CVD does not correspondingly reach a new high or low, which may be a signal that the market is about to reverse.
In summary, CVD is a very useful trading indicator that can provide important information about market buying and selling pressure, helping traders to make wiser trading decisions.