Trading Concept Supplement (5): How the Visual Taker Strength Indicator CVD Helps You Identify Direction

The Trading Concept Supplement Series aims to share some "rarely mentioned but extremely important" trading concepts. I believe that whether you are a Newbie or a Crypto Veteran, you can take away something from this series of articles. There are a total of 10 articles in this series, and this is the 5th one. The content of this article is slightly hardcore; please make sure to read the 2nd, 3rd, and 4th articles in this series before consuming it. (Background recap: Trading Concept Supplement (Four): How to Analyze Taker and Maker Buy and Sell Orders, and Follow Market Makers into the Market?) (Background Supplement: Taking the Bitcoin 2021 Double Top Structure as an Example: What is "Future Data Leakage"?) Another indicator to monitor Taker dynamics: CVD In the previous article, I shared a method to determine taker intensity based on Trading Volume; this article will share an indicator designed for taker intensity: CVD. CVD, short for Cumulative Volume Delta, is calculated as follows: VD = Taker buy – Taker sell CVD = Cumulative value of VD over a specific period CVD can also be presented in the form of candlesticks. Within the time range of a certain price candlestick, if Taker buy > Taker sell, then CVD is positive (bullish candle); if Taker sell > Taker buy, then CVD is negative (bearish candle). Based on this indicator, we can quickly see the intensity of Takers in the market data. If we observe it in conjunction with price, we can derive more useful information. Absolute Volume vs. Relative Volume In the previous article, I introduced a method based on Trading Volume, which can be viewed as "absolute volume," while CVD can be viewed as "relative volume." As for the reason, let me give you an example for clarity: Situation 1: "Within the time range of a certain candlestick, Taker buy = 10,000, Taker sell = 9,900, then CVD = +100" Situation 2: "Within the time range of a certain candlestick, Taker buy = 200, Taker sell = 100, then CVD = +100" Clever as you are, you may have noticed: the CVD values in both situations are the same, but the trading volume in the former is clearly much higher than in the latter. Therefore, when determining "whether there are Takers entering the market," I personally prefer to observe both at the same time to analyze the market data from a more comprehensive perspective. Two brainstorming questions, four real trading cases Question 1⃣: "Why is CVD continuously rising, but the price is not increasing much?" If CVD is continuously rising, it indicates that the strength of Taker buy continues to be higher than Taker sell; logically, Taker buy > Taker sell suggests strong upward momentum, but the price is not rising much, indicating that "there is heavy resistance ahead," or in other words, "Maker sell is very thick." Question 2⃣: "Is it possible for CVD to be negative at a certain candlestick moment, but the price still rises?" The answer is yes, and some readers may find it puzzling: "Isn’t it said that Takers are the driving force of price?" "If so, why can the price still rise when Taker buy < Taker sell?" The reason is simple: the influence of Makers. If CVD is negative but the price is rising, the only possibility is: "Taker sell is almost completely offset by Maker buy, so even if Taker buy is not much (resulting in CVD being negative), it can still drive the price up." Below, I have prepared four real trading cases to help you better understand the analysis logic of CVD. In the upcoming charts, the top shows the price candlesticks, and the bottom shows the CVD indicator. (Case 1) As shown in Chart 1: In the left blue marked area: the price rises sharply, but the CVD growth is actually slow, indicating that "the upward resistance is very small (Maker sell is relatively few)"; while in the middle yellow marked area: the price slightly declines, but the CVD drops significantly (but cannot push down), indicating that "the downward resistance is very large (Maker buy is relatively many)." (Case 2) As shown in Chart 2: The CVD at the red marked position shows that Taker buy continues to exert strength, but the price has not given a corresponding strength, indicating that the upward resistance is very large (Maker sell is very thick). (Case 3) As shown in Chart 3: I marked two "green dots"; the analysis logic is: the price subsequently creates a "higher low," but the CVD shows a "lower low," indicating that Taker sell has increased its intensity, but the result is in vain, and cannot push down. This type of divergence pattern is also referred to as "Seller Absorbed" in interpretation. (Case 4) As shown in Chart 4: This chart is actually to answer "the second question mentioned in the previous narrative." In the purple marked area, there is a segment where "the price is rising, but CVD is negative," indicating that the Maker buy at that time was indeed very thick. Summary This article and the previous one provide a detailed discussion on the analysis of taker intensity. The difficulty of the article itself is relatively high. If you really cannot understand it, I suggest you revisit the content of the second to fourth articles in the Trading Concept Supplement. This concludes the content of the Trading Concept Supplement (Five); I hope it is helpful to you. Thank you for reading this far. Original link: Related Reports Understanding the Six Current States of the Web3 AI Track: Compared to AI Agents, Institutions are more concerned about Infrastructure AI Agents combine with Web3, and Bots will help you enter the era of on-chain finance? Complete Introduction to Mind Network: Using FHE Technology to Crack the Security Issues of AI Agents <Trading Concept Supplement (Five): How the Visualized Taker Intensity Indicator CVD Helps You Identify Direction> This article was first published in BlockTempo, the most influential Blockchain media.