Volume Delta and Cumulative Volume Delta (CVD) are both trading indicators based on volume, but they have some differences.
Volume Delta represents the difference between buying volume and selling volume within a specific time period. It reflects the balance of power between buyers and sellers and can be used to observe market buying and selling pressure and potential trend reversals. This indicator measures the changes in market buying and selling pressure but provides only an instantaneous value, considering the volume on the current price bar. Therefore, it may be influenced by market noise and short-term fluctuations. A positive Volume Delta indicates that buying volume exceeds selling volume, suggesting increasing bullish sentiment in the market, while a negative Volume Delta indicates that selling volume exceeds buying volume, suggesting increasing bearish sentiment in the market.
On the other hand, Cumulative Volume Delta represents the cumulative value of Volume Delta over a specific time period. It is the accumulation of Volume Delta values from each time period. CVD provides a longer-term market trend analysis, showing the accumulation of buying and selling pressure. A positive CVD indicates that buying volume has accumulated more than selling volume, suggesting stronger bullish pressure in the market. A negative CVD indicates that selling volume has accumulated more than buying volume, suggesting stronger bearish pressure in the market. Cumulative Volume Delta accumulates the Delta values from each price bar, providing a better reflection of overall changes in market buying and selling pressure. By plotting the curve of cumulative Delta values below the price chart, traders can have a clearer view of market trends and changes in buying and selling pressure. CVD provides more comprehensive information and is considered more stable and reliable.
Additionally, CVD can be used to identify market bottoms or tops and can be used for managing trading positions. It can also be used to assess the strength of buying or selling pressure by observing the high correlation between price and CVD. If the price makes a new high or low but CVD fails to follow, it may signal a market reversal. Traders can also observe divergences on CVD, which occur when the price reaches a new high or low, but CVD fails to reach a new high or low, indicating a potential market reversal.
In summary, Volume Delta focuses on the difference in buying and selling power within each time period, while CVD accumulates Volume Delta values to provide a longer-term market trend analysis. They can both assist in analyzing market sentiment and trends, but they differ in terms of time scale and depth of analysis.
Overall, CVD offers higher accuracy and more comprehensive information compared to Volume Delta, providing traders with more decision-making tools.