CVD (Cumulative Volume Delta) Indicator
CVD is a powerful volume-based indicator that can show the cumulative volume changes based on buy/sell aggressors, for a specific period. You can combine CVD indications with other TA tools to generate reliable entries in the market.
The Importance and Predictive Ability of Trading Volume
Volume is a piece of key information that is commonly underestimated by most market participants. Generally, price action and volume should move in perfect harmony. Any divergence between price action and volume can be an early indication of unpredictable market conditions. For example, a key trend reversal or a key price breakout should always be confirmed by significant volume. If a price breakout isn’t confirmed by significant volume, it may not last. Additionally, the creation of a market top or bottom should also be confirmed by significantly increased volume. If the price tops with moderate volume, the market is probably found in a re-accumulation phase, not in a distribution phase.
Wyckoff argued that if price action and volume are found in perfect harmony, there is an already established price trend and there is a high probability that this trend will continue. However, if price action and volume are found in random order, there is a high probability that the trend will consolidate, or even reverse. This is why volume matters a lot and volume-based indicators such as CVD can prove useful in confirming any bull/bear thesis.