Importance of volume analysis in trading
It is first important to remember the importance of play with bandages in trade.
Real-time volume analysis can communicate key information in trading as this analysis will make it possible to distinguish strategies of dominant players off the market.
It is important to understand that market movements (rise or fall) is largely articulated or driven by Investment funds or other important actors. Understanding their strategy can therefore be particularly useful for you.
To identify or assess when these actors enters the game (entering or exiting a position), in most cases we observe high quantities. Thus, volume-based indicators such as Cumulative Volume Delta (CVD), is essential to understanding these dynamics, regardless of the trader’s experience.
The indicator that interests us: Cumulative volume delta
The cumulative volume delta (CVD) is a technical indicator used in commerce to measure cumulative flow buying and selling quantities in a market.
Put more simply, it gives perspective the power of buyers and sellers by calculating clear difference between the amount of buying and selling transactions.
On Trade display, you can have CVD for free, however, the latter will be less accurate, but in principle the CVD curve remains calculated in the same way.
In general, the indicator provides a quick overview dealer (individual investors) to see the movements institutional (professionals) who enter Or come out massively of a stock or cryptocurrencies.
They will thus be able to know if a corrective movement will be strong or weak and vice versa for an increase.
The indicator Cumulative Volume Delta (CVD) works by accumulating volume deltas, starting from a bar selected by the user. This flexibility makes it possible to define the starting point for the accumulation according to your preferences.
For the more curious, the calculation of the CVD is done by successively adding the deltas from the indicated original bar:
- For example, if the original bar is set to 10, the CVD for bar 10 will be the delta for the same bar.
- The CVD for column 9 will be the sum of the deltas for columns 10 and 9, and so on.
- To start accumulation from the very first bar, simply set the original bar to “0”.
This method allows users to customize indicator according to their trading strategy and their desired analysis period.
On Trading View you can also see a CVD negative Or positive by choosing a style i histogram.
A trader can take a buy position thanks to the CVD when it is negative.
Where to find the CVD indicator?
The CVD is available at different platforms And exchangeshighlighting its status as a recognized and widely used indicator in the trading world.
However, the latter is not guaranteed to be found on the one you use, you can find it for free Bike (by creating a free account) And coinglass.
TradingView also offers CVD among its many indicators.
CVD is particularly useful in volatile marketsespecially over fairly short periods (scalping, day trading, swing trading) where it helps identify dominant trends and potential chargebacks.
By measuring the balance between buyers and sellers, you will be able to predict price movements with greater precision.
For example, if you position yourself long and a correction takes place, by relying on the CVD, you will be able to more easily assess whether it is worth exiting your position or not by blowing your stop earlier.
What signals does the CVD send?
When the market is in an upward trend, this is reflected in the increase in CVD, characterized by a line with a positive inclination.
On the other hand, if CVD is fallingthis indicates that sellers dominate the marketwhich is visible through a line of wood negative slope.
If the CVD line is horizontalthis suggests that the market is for a period ofaccumulation or distributionindicating a situation where neither buyers nor sellers have dominant control.
In such a situation, it is advisable not to trust exclusively for this dataand waiting for the CVD to show a noticeable change.
Faced with this type of configuration, it is wise to adopt an alternative strategy while identifying clearer signs.
What are the advantages and disadvantages of the CVD indicator?
Cumulative volume delta offers several significant benefits to traders:
- In-depth market analysis: CVD allows for a more nuanced understanding of the market by highlighting the dynamics between buyers and sellers, beyond simple transaction volume.
- Trend detection: By observing changes in the CVD, traders can more quickly identify new trends, which is essential for taking positions.
- Turnaround indicator: A sharp change in the CVD value can signal an impending trend reversal, allowing traders to adjust their strategies.
- Complementarity: CVD effectively combines with other technical indicators, providing a more complete and diverse view of the market.
However, the CVD indicator also has some limitations:
- Complexity for beginners: The CVD can be complex for beginners to interpret, requiring some experience and understanding of the markets.
- Market dependence: CVD is most effective in highly liquid markets and may be less reliable in less active or low volume markets.
- Potential delays: Like any indicator based on past data, CVD can sometimes lag, resulting in decisions based on outdated information in highly volatile markets.
Our opinion on CVD
THAT Cumulative Volume Delta (CVD) proves to be a valuable tool for interpreting and using quantities in trading. Well mastered and combined with other indicators, it will subsequently allow you to better anticipate institutional approaches and major market movements.
Overall, its ability to reveal market dynamics between buyers and sellers makes it an ally of choice for understand trends. Especially for novice traders who can sometimes be surprised by large corrective movements.
In summary, CVD is an excellent way to get started with one technical analysis more in-depth, especially on the signals sent by the quantities. The latter is not necessarily complicated to master over time and can be used by traders at all levels.