CVD (Cumulative Volume Delta) Indicator
CVD is a powerful volume-based indicator that can show the cumulative volume changes based on buy/sell aggressors, for a specific period. You can combine CVD indications with other TA tools to generate reliable entries in the market.
The Importance and Predictive Ability of Trading Volume
Volume is a piece of key information that is commonly underestimated by most market participants. Generally, price action and volume should move in perfect harmony. Any divergence between price action and volume can be an early indication of unpredictable market conditions. For example, a key trend reversal or a key price breakout should always be confirmed by significant volume. If a price breakout isn’t confirmed by significant volume, it may not last. Additionally, the creation of a market top or bottom should also be confirmed by significantly increased volume. If the price tops with moderate volume, the market is probably found in a re-accumulation phase, not in a distribution phase.
Wyckoff argued that if price action and volume are found in perfect harmony, there is an already established price trend and there is a high probability that this trend will continue. However, if price action and volume are found in random order, there is a high probability that the trend will consolidate, or even reverse. This is why volume matters a lot and volume-based indicators such as CVD can prove useful in confirming any bull/bear thesis.
Using Cumulative Volume Delta (CVD)
There are different versions of CVD you can find on the internet, in any case, concentrate on the green/red bars in the middle.
How it Works
CVD collects the delta values of every bar (buying volume - selling volume) for a specific period and creates a visual sequence of green/red bars. Traders can modify the length of the cumulative period.
- CVD prints a green bar if the volume delta is above zero -Which means buying pressure exceeds selling pressure
- CVD prints a red bar if the volume delta is below zero -Which means selling pressure exceeds buying pressure
It is recommended to use CVD on timeframes above the hourly (H1), as readings on lower timeframes can often mislead and create false signals.
Setting the periods
The CVD calculates each bar for a specific period that can be adjusted. Within that period, CVD cumulates all the deltas between buying and selling volume. By default, it is 14.
CVD behavior in a bull/bear market
In a strong bull market, CVD will steadily grow with a positive slope. You can expect a sequence of green bars that may last for several weeks. When the bulls start to lose momentum, CVD starts to create a negatively sloping line. Green bars are still printed, but those bars are now shorter than before. That is the first indication of the exhaustion of the trend. Later, when CVD starts to print red bars, the trend reverses significantly faster.
In a strong bear market, you can expect the exact opposite situation. As the sellers dominate the market, CVD prints a sequence of red bars with a negative slope. When sellers start to lose momentum, the red bars will grow shorter and CVD will have a positive slope. Later, CVD starts to print green bars, indicating the point of a trend reversal from bear to bull.
When CVD is flat
When the market is in an accumulation, re-accumulation, or distribution phase, CVD will likely be flat. This means that buy/sell volumes are found in equilibrium.
Combining the Cumulative Volume Delta (CVD) Indicator with Other Indicators
As is the case with most indicators, CVD should not be used in isolation. CVD can easily cooperate with many different indicators in order to confirm trading signals. In our example, we combine CVD with RSI Precision. Note that RSI Precision is an enhanced version of the classic Relative Strength Index.
» Learn more about RSI Precision by TradingCenter.org
Chart: CVD & RSI Precision on the Daily Bitcoin
At the beginning of the above BTC/USD chart, we can observe a powerful divergence between the price chart slope and the RSI Precision slope. That is an early indication that the bullish trend is exhausting and a trend reversal is likely to occur. Then, in mid-November, CVD turns red for the first time after several months. That is a signal to sell the market.
In the middle of the chart, we can observe a positive slope on the CVD chart, at the same time, RSI Precision makes a very bullish crossover above level 20. It is a confirmed signal to buy the market.
Cumulative Volume Delta Formula
These are the basic calculations:
- Buying volume = bullish price condition X volume
- Selling volume = bearish price condition X volume
- Volume delta = difference between buying volume and selling volume
- CVD = the cumulation of volume delta for a specific period
Delta
Delta measures the difference between buying and selling volumes within a specific period. This period can be any candle like a 30-Minutes, 1-Day, or 1-Month candle.
- Green bars, when buyers dominate the market
- Zero, when buyers equal sellers
- Red bars, when sellers dominate the market
Coding CVD Bar on Pinescript
For those who are using the programming language Pinescript on TradingView, this is the basic script for the CVD bar:
//@version=4
study("CVD Bar")
///Note, this script is provided for educational purposes
///INPUTS
T0 = "Within that period, CVD will cumulate all the deltas between buying and selling volume"
cvd_period = input(14, tooltip=T0, title="CVD Cumulative Period")
///BASIC CALCULATIONS
HighLow = high-low
low_close = close>open ? open-low : close-low
up_close = close>open ? high-close : high-open
candle_size = HighLow - (up_close + low_close)
candle_size_perchentage = candle_size/HighLow
low_close_perchentage = low_close/HighLow
up_close_perchentage = up_close/HighLow
bull_volume = close>open ? (candle_size_perchentage + (up_close_perchentage + low_close_perchentage)/2)*volume : ((up_close_perchentage + low_close_perchentage)/2)* volume
bear_volume = close<open ? (candle_size_perchentage + (up_close_perchentage + low_close_perchentage)/2)*volume : ((up_close_perchentage + low_close_perchentage)/2)* volume
//TIMEFRAME CALCULATIONS
adding_bull_volume_1 = ema(bull_volume,cvd_period)
adding_bear_volume_1 = ema(bear_volume,cvd_period)
cvd_delta = adding_bull_volume_1 - adding_bear_volume_1
/// PLOTS
plot(cvd_delta, color= cvd_delta>0 ? color.green : color.red, style=plot.style_columns)
Copy and paste the above script to TradingView (Pine Editor), in order to practice with CVD bar. Note, this script is provided for educational purposes, not for trading.
■ CVD (Cumulative Volume Delta) Indicator
G.P. for TradingCenter.org (c) March 2022
L MORE REVIEWS • COMPARE • BROKERS
□ Forex Brokers Comparison
□ CFD Brokers
□ Expert Advisors (EAs)
► IC Trading Review
► FXOpen Review
► FP Markets Review
► IC Markets Review
► RoboForex
► FBS Review
► TitanFx Review
► FXDD Review