Cumulative Volume Delta (CVD) 📚
CVD measures the difference in buying and selling volume at each price level. It helps traders identify buying and selling pressure in the market.
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CVD measures the difference in buying and selling volume at each price level. It helps traders identify buying and selling pressure in the market.
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When CVD is positive, it means that buying volume is greater than selling volume. This is a bullish signal and suggests that the price of the crypto is likely to rise.
When negative, it means that selling volume is greater than buying volume. This is often a bearish sign.
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When negative, it means that selling volume is greater than buying volume. This is often a bearish sign.
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There are two things to keep in mind though!
1. It is entirely possible to see an uptrending market with a negative CVD and vice versa. How?
If there is a lot of passive orders in the orderbook absorbing all the buys or sells this can happen.
Example below:
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1. It is entirely possible to see an uptrending market with a negative CVD and vice versa. How?
If there is a lot of passive orders in the orderbook absorbing all the buys or sells this can happen.
Example below:
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2. If you see CVD very one sided and with that, open interest going up it can indicate a lot of crowding into that side of the trade.
Be careful if this happens, especially if the spot pair is showing the opposite as it could mean a squeeze is on the table.
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Be careful if this happens, especially if the spot pair is showing the opposite as it could mean a squeeze is on the table.
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CVD can also be used to identify key support and resistance levels. If buying volume is strong at a certain price level, it suggests that buyers are willing to step in at that level, which can act as support.
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When used correctly, CVD can be a valuable tool to give insight into what is happening and where. I mostly use it in combination with open interest and funding rates to identify potential long or short crowding.
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