What is Cumulative Delta (CVD Indicator): Bitcoin Capital Inflows & Outflows
Key CVD indicator takeaways:
- The CVD indicator is based on the Cumulative Volume Index (CVI) for cryptos that show net capital inflows and outflows in the crypto market.
- The CVD indicator is a unique indicator available on TradingView and Coinalyze. Phemex trading pairs are listed on these sites, hence users can take advantage of them.
- The CVD indicator can be used as a momentum/trend indicator to determine if we’re in a bull market or a bear market and predict further price movements.
What Is The Cumulative Delta Indicator?
The Cumulative Volume Delta (CVD) indicator is a trading indicator that measures liquid volume inflow for an asset. It was developed in the 1980s for the stock markets. In crypto, this is a less popular indicator only available on TradingView. Phemex is one of the top exchanges listed on TradingView that allows crypto traders to take advantage of this powerful tool.
Price action on crypto charts such as BTC/USDT and ETH/USDT is dictated by capital volume inflows. The more buying pressure is put on a coin, the more the price appreciates. The reverse applies for sell pressure. If a trader has access to data that showcases cumulative volume inflows and outflows for crypto, they stand a better chance of predicting future price movement.
The number of the CVD indicator is not as important as the actual trend line. The CVD delta had a lower number when Bitcoin (BTC) hit an all-time-high of $69,000 in November 2021 than it did at the previous all-time-high of $65,000 in April. The indicator is only used to predict current trends in the crypto market.
Cumulative Volume Indicator History
The Cumulative Volume Indicator is one of the newer indicators in crypto. The indicator was primarily used in the stock markets since the 1980s and was later adopted by crypto traders. Historically, it was used to monitor capital inflows on large stock market indexes such as the NYSE (New York Stock Exchange), Nasdaq, and S&P 500.
The indicator has historically kept track of all securities on the stock exchange, giving traders a macro overview of the markets. Because there is no crypto index, the CVD indicator can only be used for individual crypto pairs such as BTC/USDT.
Most successful traders use the CVD indicator in conjunction with other indicators such as Fibonacci retracement levels, RSI, Zig Zag, and other TA indicators. This helps them analyze the state of the market and plan their trading strategy.
The CVD indicator was not designed to be used as a standalone indicator. It can give confirmation of a reversal in the crypto market when there is a large inflow or outflow of capital from an asset.
The most reliable pair in crypto is the BTC/USDT pair. Most capital inflows in the crypto industry occur through Bitcoin, which gives us a good overview of the state of the market. If there is a large outflow of capital from Bitcoin, it could signify the start of a large market downtrend.
How Cumulative Delta Works?
The Cumulative Delta indicator narrows down buy and sell volume for every crypto. It also rates it in a “delta” number which shows how much people are willing to pay for a certain crypto. The CVD indicator always starts at 0. The indicator often shows a number above or below zero, and it can sometimes be equal to 0 if the buy and sell volume is the same.
The Cumulative Volume Delta (CVD) indicator is not to be confused with the Volume Index or general volume indicators. Most volume indicators show the total volume and do not differentiate between buy volume and sell volume.
This indicator is available on TradingView, but there are multiple CVD indicators traders can choose from. Most of them are free (below we’ve laid out examples for the BTC/USDT pair on Phemex).
The “delta” in the CVD indicator signifies the trend in the current market movement. The delta can be green or red depending on whether buy or sell pressure is higher. The difference in buy and sell volume can be shown on the 1 week, 1 day, 4 hour, 1 hour, and 15 minute charts.
If the delta line is marked in green, it means the buy volume is greater than the sell volume for the particular timeframe selected on the chart. If the delta is marked as red, it means the sell volume exceeds the buy volume.
The CVD indicator is based on those deltas. While the indicators start at 0 (when buy and sell volume is equal), it can eventually reach 100,000 in any direction. A trader can adjust the indicator to start at any point in the coin’s history for a micro and macro overview of the price action.
How To Use The CVD Indicator To Trade on Phemex
The CVD indicator can help you plan your trades on Phemex. To get an overview of how it works, head to TradingView. TradingView has a chart for all Phemex cryptos, allowing you to analyze the indicator for all of them.
Sign up for an account to use advanced indicators on TradingView. Head to the search bar and search “BTC Phemex” and select the spot trading pair. The TradingView Phemex BTC/USDT pair will show up which is a real-time display of the Bitcoin price:
Click on it and you will enter the Phemex TradingView chart:
Now click on the top left of the chart under “Indicators” and search for “Cumulative Volume Delta” and you will notice a few indicators will show up. A user can experiment with all of them for free:
If you left click on an indicator it will load it up at the bottom of the BTC/USDT chart:
According to this chart, the delta spiked to an all-time-high of 70,000 on April 15th, 2021, when Bitcoin reached an all-time-high of $65,000.
The price then went down significantly in mid-May and has steadily climbed back up since September to a new all-time-high. However, the buy volume of the $69,000 all-time-high didn’t exceed the buy volume of the previous $65,000 all-time-high, and this indicates sells were more persistent.
This also indicates that people were less willing to pay $65,000+ for Bitcoin in November than they were in April. At the time of writing, Bitcoin is trading at under $40,000. The only way to find out if Bitcoin is in an uptrend is to combine CVD with other indicators.
Multiple indicators can run simultaneously. The Zig Zag indicator can help us analyze trends on the Bitcoin chart (upwards and downwards) and combine that with the CVD delta:
According to the Zig Zag indicator, Bitcoin is currently on an upward trend. If we check the CVD indicator, it is currently also showing a positive delta number of +24,000 which confirms our bullish thesis.
If you right-click and press “Settings” on the CVD indicator, you will notice the default MA (Moving Average) is set at 100 days. This can be adjusted for a longer or shorter timeframe to draw lines for technical analysis:
The CVD ratings of the two indicators differ and each CVD indicator will give you a different perspective so it is recommended to experiment with multiple CVD indicators to find out which one works best for you.
One more way to get a better overview of the state of the market is to switch to a log chart. If you press “Alt + L” on TradingView as you’re viewing the CVD indicator, you can switch the Bitcoin chart to a log chart from a vertical chart. This will give you a better overview of what price action to expect in the future:
The Cumulative Volume Delta (CVD) indicator is available on TradingView. Each CVD indicator line starts at 0 and goes to a positive or a negative number, depending on the state of the crypto market. There are multiple CVD indicators. This means that the delta number can vary from one to another. What matters is the overall trend shown by the indicator.
If there is a sharp market trend upwards or downwards, this will show up in the CVD indicator, and some indicators use green and red colors to make interpretation easier. Choose an indicator based on your specific moving average requirements.
If a trader opens a long or short position, they want to see that the delta correlates to their trade. For example, suppose a trader places a long position on the BTC/USDT pair. If the indicator is green and the delta is going up, this means there is more buy pressure and their position will likely be profitable.
The delta number can only give us an idea as to how much people are willing to pay for Bitcoin or another crypto. For example, if Bitcoin is setting new all-time-highs, but the delta number has not surpassed the previous all-time-high, it means that fewer people are willing to pay that price and that the trend could reverse at any moment.
The opposite holds true for short positions. If the trader is shorting crypto and the delta number is not generating new lows, they are at risk that the trend could reverse and lead to an unsuccessful trade.
The trader has to remain alert to fluctuations in the market and the CVD indicator is one way to determine the market is trending. It visualizes the total volume and rates it in delta numbers, helping traders plan out more successful trades.