Order Flow Intro: Cumulative Volume Delta

Alright, so you've made it this far. Let's talk about the cumulative volume delta, otherwise referred to as the cvd. Now this is something that I've used across multiple markets. It's one of my go to tools and hopefully by the end of this video you will not only understand what it is, but why it is useful. It's a very simple concept, it's a very useful tool. So before we get into anything, just going to explain what we're looking at right here. So we have our price candlestick chart and then underneath that we have the running cvd. So each one of these candles corresponds with one of our candles above. And each one of these candles represents that candle's daily delta. So for these two charts, all you're looking at is the relative size differences. You could see, for example, when some days had higher deltas or lower deltas or more positive deltas than negative deltas, and you could begin to maybe judge whether or not there was more buying in one candle than there was in the prior. Right. We could see where we have higher and lower delta values, more positive and more negative delta values just by this size with respect to previous candles, with respect to the individual candles that correspond to this cvd. So underneath that we have the numbers, bars, calculated values. And what this is showing us right here is the ask volume minus the bid volume and that's the delta. So you can go into this and change the settings so that that says delta. And if you remember from the last video, the delta is the difference between aggressive buyers and aggressive sellers. So each one of these candles has a delta value more often than not. And I say more often than not because it's not all the time. A candle that closes higher than where it opens is going to have a positive delta. And a candle that closes downward, meaning closes lower than where it opens, is going to have a negative delta. And this should make sense at face value. When a candle is moving up, when prices are moving up, we have a lot of aggressive buying. When prices are moving down, we have the opposite. We have likely sellers moving the market. That makes sense. I say that it's not all the time because it's important to understand that it doesn't need to be that way. You can have a candle that's green, that closes higher, that actually has a negative delta value. But what we're looking at is the difference between the aggressive sellers and the aggressive buyers. So we're going to have either a positive value if there are more aggressive buyers, or a negative value if there are more aggressive sellers. Now remember, when we talk about aggressive buyers or aggressive sellers, what we're referring to is those traders that are using market orders, they're executing at market, they are taking liquidity from the book. So on the other side of these aggressive orders is always a passive order. So if I execute a market order to buy, there is someone executing a passive order or a limit order to sell. So the delta is that individual candles have their own individual delta. It doesn't matter if we're looking at a 30 minute bar or 5 minute bar, any periodicity, it's going to show us the corresponding delta for that order rotation size. So 5 minute 30 minute. In this case we're looking at 30 minutes. So we're seeing 30 minute deltas. So that is the delta value across the top. The cumulative volume delta is just the running total of that value as it changes over time. So you could see that for example, we have this candle that closed lower right here. That is your corresponding delta on the bar chart. On the running cvd that is the actual delta print which was negative eight point.

Contracts. And at that point the CVD was negative 17.89 million contracts. In the candle that follows, a candle that closes higher than where it opens within the previous candle, we actually have a positive delta value of almost 900,000 contracts. So you could see that after that came in, the CVD actually dropped a little bit. Well, in this case it went more towards the positive side because we took away from that negative value roughly 900,000 contracts. So all we're doing is keeping a running total of what the individual deltas are and whether or not you have this set to the beginning of the session or to, you know, the beginning of the values that are showing up on your chart or all running data. You might have different values, but it's showing you roughly the same thing. All right, the difference between aggressive buyers and sellers individually and then cumulative is just added up over time. So those positive and negative values. So what we're looking for is divergences in delta. So just to understand what this means, delta. So we're going to go ahead and get rid of these numbers bars now we're going to go to studies and we're going to take these away just so we remove some of the noise from the chart. You guys by now know that I don't like a lot of things on the chart.

So it makes sense that delta is more often than not going to follow price action. If you have a trend that is moving upward. If it's moving upward over time, you'd imagine that it's moving upward. Why? Because there are more buyers than there are sellers. Buyers are getting aggressive. You might have different situations underlying. For both though, you might have a thin environment that there's just a few buyers and they're able to push the market up. You might have a lot of aggressive sellers, but there's a lot of reloading at the bid and the market is moving up. Right, but pretty much all the time when the market is moving up, it's because we have more buyers than sellers. Right? That's just a very easy thing to understand. When the market is moving down, it's obvious that we have more sellers than we do have buyers. Okay? So the divergences in Delta are when these two do not follow. All right? And we shouldn't look at Delta and think that Delta leads price. Okay? And there are times when I've mentioned maybe Delta will be leading. But before we get into sort of the nuances, just consider this. When you see Deltas going up, it doesn't mean that price is going to go up with it. It doesn't mean that there's going to be follow through. What that shows us up until this point is that buyers, their intention has been to lift the offer, has been to rather continuously buy. So what we see when we see divergences in Delta instances like this, for example, we have a high. The market makes multiple highs up into this location, hits an area of resistance, the follow through, we have pretty much an equal high. But if you look at Delta, what we've really done is continuously move up over time. So remember, this is a running total of all the individual Delta values within the structure. Okay? So this helps us answer one of the most important questions that we ask ourselves. So one of the first ones is where is the market trying to go? Well, when Delta is continuously moving upward, it's clear that the market is trying to move upward. Buyers are getting more and more aggressive. So buyers are trying to lift the offer, they're trying to raise price, they're trying to buy up as much as possible. So that's where the market is trying to go. It's trying to go upward. The next question we have to ask ourselves is always is, is it doing a good job of getting there? Okay, if we see that Delta over time has been increasing but the market has not, meaning rather the price has not, we have an equal high. In this case, we have our answer. The market is doing a poor job of getting there. All right? So what this is Showing us what CBD divergences like this are showing us are levels, increases in friction or overall liquidity. Okay, so we know that on the other side of this, since we have two equal highs, but we have an increase in delta overall, there was an increase in the offer, or there was more pressure on the offer or more overall levels of friction. So imagine, as I've said times before, now this will make sense. This is likely where the heavier hand is. So the heavier hand is more often than not in the passive order. The smaller traders more often than not will be using market orders. It doesn't mean that they only use market orders and that larger traders only use limit orders. But more often than not, especially when taken in context of looking at major support or resistances, when you see this occurring, it's not something that you want to fade because you know that something is doing a good job of keeping down all that activity. So when we're looking at a divergence in delta, what we're really seeing is increased effort for lack of results. Okay, so we could go throughout this chart and there'll be multiple instances of times where we had these delta divergences and Price did nothing. All right, so we see that over here, for example, we have a high, we have another poke at that high, and the delta value over time had been increasing. What this shows us is that there is a stronger force on the other side of all that activity. At this point, this is one of the most useful tools that we can use to, to set ourself up in the right directional bias. Okay, we know that the opposing force is right here. How are we going to get aligned with the next move? Well, we don't want to try to fade. In this case, the stronger opposing force that is essentially like trying to swim upstream, whereas some people might have crudely put pissing against the wind. So this is basically showing us overall levels of liquidity, if you think about it, overall levels of friction, where the order book is stacked, where it is thin. Because as you can imagine, this works both ways. Now you can look at individual delta bars as well on the cvd, and that's why I have it set to candlesticks, because there are times where you can even see this on the low time individual level at the candle base. So, for example, you might have something, and maybe we'll be able to find an example right away. You might have a candle that is very small, but a delta candle that corresponds with it that is very large. And finding these is a little bit tougher because they're a little bit less obvious than spotting the delta divergence. In this case. For example, let's imagine that we have a candle up here that has a long wick at the high, but our delta candle that corresponds with it is straight up. These should be similar in size. When we see something like this, and this is me just drawing artwork. I'm not focusing on that candle. When we see something like this in the cbd, but a candle like that, that's showing us in that individual candle, there was clearly absorption. We had a ton of buying activity, but the corresponding candle does not show the same. We ended up closing more towards the low. Now, one of the opposite things can be said when we have, for example, delta, that is not making a higher high, but price is what this can actually show us when we have small delta bars. Okay, let's imagine that down here again. Now we're looking at. We'll just use the drawing tool rather as a whole. So I'm going to X this out. Let's imagine that this is the designation between our price chart and our delta chart. So when we see that over time, CVD is doing something like this, okay, but price has been doing something like that. What this might indicate is that there's a lack of liquidity, right? That this area is really thin for the corresponding movement that we have. We don't have a ton of increased buying activity. So what this can indicate is that this is a very slippery area. Now, you could see this again on the individual level. So if you see a small delta candle, so on the cvd, if you see a small individual delta candle, but you have a very large price candle, that's an indication that things are a little bit slight slippery and the environment might be thin. What CVD does is it very obviously shows us levels of liquidity within market structure. This shows us where the friction lies. And this could potentially show us, therefore, where the heavier hand is. This is very useful when you're using this at key areas within market structure, key contextual levels, or the areas that you're looking for reactions and whether that is support or resistance. Because it could give you some sign as to whether or not you're on the right side of the market, if you're buying that support or if you're selling that resistance. If, for example, we see that we're approaching a resistance, and on the price chart, we have something like this over time. So equal highs at resistance. But in delta we have something like this. What that indicates is that buyers were still getting aggressive on the tape buying up the offer, but they were doing nothing to move price. So we have increased activity over time, increased effort, less results. Alright, so this is what the CVD is. This is showing us just that. It's showing us work for results. How much work are we doing, how much effort are we putting in? What type of results are we getting? And when we take this into consideration with where we sit within market structure, it gives us a really good idea of where the market is thick, where the market is thin, and where potentially the heavier hand is.