During one of the updates in the ATAS platform in 2023, the Market Power indicator was renamed to CVD Pro. The full name of the indicator is Cumulative Volume Delta. It is widely used by traders when analyzing volumes.
Read this article to find out:
For any trade to take place, the buyer and the seller must meet.
There is always a limit order in the trade (it is waiting for its execution in the order book) and a market order (it is executed immediately).
Delta represents effort or pressure. The higher the positive delta, the stronger buyers’ pressure. A negative delta represents sellers’ pressure. Examining the delta dynamics is a method to observe the battle between buyers and sellers on the exchange over time.
Read more about the mechanics of exchange trading and matching orders in the articles:
To understand the similarities and differences between Delta, Cumulative Volume Delta Pro and Cumulative Volume Delta Pro (Multi), let’s have a look at a screenshot of a minute chart from the cryptocurrency market (the main principle is the same for all markets).
Numbers indicate:
In the CVD Pro settings, there is an additional filter where you can set the minimum and/or maximum value of trade volumes that will be considered for calculating CVD Pro (see the example below).
For example, let’s set the Minimum Volume to 2000 and Maximum Volume to 0 (a zero value means that there is no upper threshold for the filter). With such settings, CVD Pro will display cumulative delta only for trades whose volumes exceed 2000 contracts (in this case, for futures from the LTCUSDT market).
We can make an interesting observation:
Thanks to the built-in filter in CVD Pro, you can focus on changes in cumulative delta:
Since each market is unique, the filter in the CVD Pro indicator should be reconfigured when the market changes.
Another more technical feature is that to save resources, the indicator calculates only one day. If you need to study the dynamics of the CVD indicator on history, change the End Date setting in the timeframe settings menu, as shown below.
If one CVD filter is not enough, you can:
The screenshot below shows how the CVD Pro (Multi) indicator works. The filters are configured as follows:
The idea is simple — the larger the volume, the thicker the line.
In any case, using filters to separate cumulative delta into components can provide valuable information for tracking the activity of trader groups with different capitalizations.
More entertaining examples will be provided later.
In an ideal scenario, price increase should be accompanied by a rise in the cumulative delta line, which would indicate buyers’ initiative.
In theory, when the market is in an uptrend, higher price peaks and troughs should correspond to higher highs on the cumulative delta indicator line. In fact, this is not always the case.
When analyzing a bull market, it is common to assume that:
The opposite is true for a downtrend period.
However, the market is more complicated in reality. Moreover, CVD lines created with different filters may sometimes demonstrate opposite dynamics, which provides valuable information for analysis.
Let’s go through a few practical examples to make it easier for you to start using Cumulative Volume Delta with filters if you have not done so yet. We will show an interesting trick for advanced users of ATAS: how to create an oscillator based on CVD.
Let’s look at the behavior of the CVD indicator in the NQ futures market. We use the Range chart to smooth out the uneven trading activity within the day.
The CVD Multi indicator is configured as follows:
We observe a distinct stratification on the day when the technology stocks index was declining.
On July 20, 2023, the bearish price dynamics were driven by the negative Q2 report released by Tesla.
As seen from the blue line, small-cap traders did not believe that prices would continue to fall and showed initiative by buying futures.
Large-cap traders (green line) traded strictly in the direction of the intraday trend. This can also be interpreted as large orders influencing the market’s direction.
It is obvious that retail traders suffered a loss at the end of the day, in contrast to the “smart money“.
Another example with the same settings a couple of sessions earlier:
This time, large-cap traders also followed the trend:
Traders who were trading 1-2 contracts missed the downward reversal towards the end of the day.
The red line shows the activity of traders who started to take the initiative to sell too early.
Without changing the settings, let’s switch to the gold futures chart.
Traders with small capitalization were bullish from the very beginning of the day, which turned out to be a wrong decision.
Traders with medium volumes (the red line) attempted to catch the upward reversal at the beginning of the European session, but did they make a profit? Exiting without losses could have been a decent option.
Notice the sharp drop at the day’s price minimum. It occurred on the CVD line, which was constructed based on large volumes.
This is a five-minute chart of Ethereum futures from the Bybit exchange.
As seen from the candlestick dynamics, the day was bearish.
Yellow candles show the dynamics of the usual cumulative delta.
The blue line shows the dynamics of the CVD Pro indicator, which filters out all trades with a volume below 1 ETH.
Comparing the dynamics of the yellow and blue lines, you can notice that:
And here is another interesting example of how those who trade with small volumes make unfortunate decisions — below is the price chart of the meme token DOGE.
There was a price pump in the middle of the day. It may have had to do with Twitter and Musk. When the market “cooled down“, and the price dropped closer to its “moon launch“ levels, the enthusiasm of small traders did not subside, and they continued buying. Big capital acted differently – the blue line (small traders) runs counter to the yellow one.
The analysis of the above charts shows that traders with large capital seem to trade more profitably as they act according to the trend. However, the price and large volumes move in sync, and it is precisely the large volumes that influence the price movement.
Traders with small working volumes often act against the trend, making wrong decisions. Consider trading against the direction indicated by the cumulative delta line based on small volumes as a way to implement a Contrarian Trading strategy.
The ATAS platform enables you to take a snapshot of trader activity with different capitalizations using the Cumulative Volume Delta (CVD) Pro and Cumulative Volume Delta Pro (Multi) indicators with built-in filters.
By configuring the filters effectively, you can categorize traders based on their capitalization. As the examples above show, this will help you make more informed trading decisions.
We should also mention the Market Replay simulator of the ATAS platform, which allows you to save time on trading education without risking your capital. For instance, you can develop and test your own trading strategy based on the CVD Pro indicator in an environment that closely simulates real-market conditions.
Download Free Trial ATAS. It is free. During the trial period, you will get full access to the platform’s tools to experiment with the CVD Pro indicator and others. Moreover, you can continue using the program for free even after the 14-day trial period is over, whether it is for cryptocurrency trading or volume analysis.
That ATAS platform:
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Information in this article cannot be perceived as a call for investing or buying/selling of any asset on the exchange. All situations, discussed in the article, are provided with the purpose of getting acquainted with the functionality and advantages of the ATAS platform.
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