Cumulative Volume Delta (CVD) – What It Is & How to Trade with It

Cumulative Volume Delta (CVD) – What It Is & How to Trade with It

What is the Cumulative Volume Delta (CVD) Indicator?

The Cumulative Volume Delta (CVD) is an order flow indicator that tracks the net difference between aggressive buyers and sellers in the market. It helps traders identify buying or selling dominance by analyzing the volume of market orders hitting the bid (sell orders) and ask (buy orders).

The CVD formula is:
CVD = Previous CVD + (Buy Volume – Sell Volume)

Where:

• Buy Volume = Total market orders executed at the ask price.
• Sell Volume = Total market orders executed at the bid price.
• CVD accumulates values over time, showing the cumulative net buying or selling pressure.

Key Features of Cumulative Volume Delta Indicator

• Tracks real-time buying and selling pressure.
• Helps traders confirm trends and potential reversals.
• Useful for scalping, day trading, and market depth analysis.

How to Use CVD in Forex Trading

1. Trend Confirmation Strategy

CVD helps traders confirm the strength of an ongoing trend based on volume delta:

• Bullish Trend: CVD is rising, confirming strong buying pressure.
• Bearish Trend: CVD is falling, indicating aggressive selling.

2. CVD Divergence Strategy

Divergence between price and CVD can signal potential trend reversals:

• Bullish Divergence: Price makes a lower low, but CVD makes a higher low (buy signal).
• Bearish Divergence: Price makes a higher high, but CVD makes a lower high (sell signal).

3. Breakout Confirmation Strategy

CVD helps validate breakouts and fakeouts:

• Buy when: Price breaks above resistance, and CVD is rising, confirming strong buy-side volume.
• Sell when: Price breaks below support, and CVD is falling, confirming strong sell-side volume.

4. CVD with Moving Averages

Pairing CVD with a moving average (e.g., 50 EMA) improves trade accuracy:

• Buy when: CVD is rising, and price is above the 50 EMA.
• Sell when: CVD is falling, and price is below the 50 EMA.

Pros and Cons of Using Cumulative Volume Delta

✅ Pros:

• Helps confirm trends using real market order flow.
• Useful for detecting reversals and breakout strength.
• Provides insight into institutional buying and selling behavior.

❌ Cons:

• Requires market order data, which may not always be available in forex.
• Less effective in low-volume or illiquid markets.

Final Thoughts

The Cumulative Volume Delta (CVD) Indicator is a powerful order flow tool that helps traders analyze market sentiment, confirm trends, and detect reversals. When combined with moving averages or price action strategies, CVD enhances trade accuracy and decision-making.