Volume Delta – The Ultimate Order Flow Indicator

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Volume Delta and Cumulative Volume Delta are two of the best trading indicators you can use when trading order flow. It gives you an instant snapshot of the buying and selling pressure in a market.

After reading this post you will understand how volume delta provides a critical edge by allowing you to spot potential large reversals in the market. You will also learn how to use the cumulative volume delta indicator to manage your trading positions.

What is Volume Delta?

Volume Delta is the difference between buying and selling pressure. Volume Delta is calculated by taking the difference of the volume that traded at the offer price and the volume that traded at the bid price.

If delta is greater than 0 you have more buying than selling pressure. If delta is less than 0, you have more selling than buying pressure.

1 Minute Chart of ES Displaying Delta

We use delta to understand the relationship between buying or selling pressure and price.

Let’s imagine a price bar that reached the low for the day and delta was negative but the bar closed higher than it opened.

In simple terms we can describe this as:

  • Price made a new low
  • The bar closed higher
  • Delta demonstrated more selling than buying pressure

Without looking at the chart below, would you be more inclined to do, go Long or Short?

Volume Delta Divergence

If you said long you were correct. More on this later…

Volume delta is a key metric to understand when making trading decisions based on volume and order flow. However, on its own it can be too much information to interpret quickly when trading in a volatile market.

As a trader, I like to view things visually at a glance… Introducing Cumulative Volume Delta.

Cumulative Volume Delta

Cumulative Volume Delta Indicator

Cumulative volume delta takes the delta values for every bar and successively adds them together to visually provide a graph as seen above.

While volume delta is great for comparing delta bar to bar, cumulative volume delta is useful when determining buying or selling pressure at different price levels such as swing highs or lows.

Let’s do a quick recap on swing highs and swing lows.

Swing Highs and Swing Lows

A swing high (SH) forms when the high reached on a security is higher than price action around it. Once price moves above a prior swing high and begins to retrace a new swing high is formed.

A swing low (SL) forms when the low reached on a security is lower than price action around it. Once price moves below a prior swing low and begins to retrace a new swing low is formed.

When price is making higher highs followed by higher lows a market is considered to be in an uptrend.

When price is making lower lows followed by lower highs a market is considered to be in a downtrend.

When evaluating delta it’s extremely beneficial to compare delta values at swing lows or swing highs to determine the amount of selling or buying pressure and how the market is reacting.

The true power delta is revealed when we use it to determine the market’s reaction to powerful buying or selling. We want to see if the market has reacted as we would expect or not.

Swing Highs and Lows with Delta Confirmation

In the above example you will notice every time price breaks a swing low, delta does as well.

This makes sense as it takes selling pressure to break a swing low or buying pressure to break a swing high.

BUT….what’s occurring when this isn’t the case and we have divergence between price and delta?

Trading Exhaustion with Delta

Exhaustion: When less buyers are willing to buy at new highs or when less sellers are willing to sell at new lows, represented by delta.

Cumulative Delta Exhaustion Setup Short

On the above chart notice how price breaks out to new highs but Delta doesn’t follow through.

When this occurs the buyers are said to be “Exhausted” as they aren’t interested in buying at the new highs.

30 second candlestick chart of eMini S&P 500 with Exhausted Buyers

You can see above how the exhausted buyers began to liquidate their positions driving price down.

Let’s take a look at another exhaustion setup.

30 Second Candlestick Chart of Exhaustion Long Setup

In this example price is now making new lows but delta wasn’t able to. The sellers are now said to be “Exhausted” as they aren’t interested in selling at these new lows.

30 Second Candlestick Chart of Exhaustion

The end result was the exhausted sellers began liquidating their positions driving price up. Notice the pin bar at that exhaustion level, something worth exploring.

Trading Absorption with Delta

Absorption: When aggressive buyers are unable to take price to new highs or when aggressive sellers are unable to take price to new lows. The aggressive buying or selling pressure is being “Absorbed”.

1 Minute Candlestick Chart of Long Absorption Setup

In the above example delta is making new lows but price isn’t following through. Even though there’s aggressive selling pressure, that pressure is being “Absorbed” by the buyers.

1 Minute Candlestick Chart of ES rallying from Absoprtion

Resulting in a rally as seen above.

1 Minute Candlestick Chart of ES Showing Absoprtion

In the next example, delta is making new highs but price doesn’t follow through. Can you guess what’s occurring here?

1 Minute ES Chart showing Delta Absorption

The buying pressure was “Absorbed” by the sellers resulting in a sell off.

Cumulative Volume Delta & Trade Management

Delta not only will help you spot major reversals, but it can be used to help manage your open trades as well. When in a position, whether long or short, you want to see high correlation between delta and price.

If you’re long while price is breaking new highs you want to see delta breaking highs as well. If buyer’s aren’t interested in buying at the new highs, represented by delta not breaking highs, the probability of a reversal increases.

If you’re short while price is breaking new lows you want to see delta breaking lows as well. If sellers aren’t interested in selling at the new lows, represented by delta not breaking lows, the probability of a reversal increases.

When in a position always be on the look out for exhaustion and absorption signaling a potential of a reversal.

Cumulative Delta Indicators

NOTE: I’m giving away my chart templates for Sierra Charts and MotiveWave to all JT Insiders. It’s free… SIGN UP

Sierra Charts: Sierra charts has been a rock solid platform for me for nearly 10 years. It still has it’s old and rugged user interface but it just works. Very lightweight system that doesn’t lock up even in high stress data times.

Ninja Trader: Ninja Trader offers a number of order flow indicators including cumulative delta with their free platform. If you’re looking to trade with footprint charts as well you will have to purchase their platform as the free addition doesn’t include footprints.

MT4: You will find some free cumulative delta indicators out there for metatrader but if you’re using them to trade Forex they won’t be accurate. Forex has no centralized exchange so it’s impossible to get accurate order data for volume delta. Your only option if you want to continue to trade currencies would be to switch over to futures.

ThinkorSwim: Doesn’t come standard with cumulative volume delta, but there’s some scripts out there that you can purchase and try.

COMPLETE Day Trading Course (Beginner to Pro) - Intro

Final Thoughts

Cumulative volume delta is one of the best indicators you can include in your arsenal as an order flow trader. It gives you an inside look at buying and selling pressure and how the market is reacting to it.

Try delta with your current strategy or with a few other components and you won’t be disappointed. If you’re interested in additional order flow indicators read this guide.

Like any trading indicator, it will take screen time to become proficient with volume delta. So get out there and get testing!

Let me know if you have a question in the comments below!

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56 Comments

    1. Thanks Bryan! I appreciate that. Let me know if anything is not that clear…comments always help me improve my posts!

      1. I have to say your pedagogy and writing skills come out so crystal clear. I say this after having read a lot of stuff along the way. You go always go straight to the meat of everything with such ease and clarity. Thank you!

  1. Thanks Adam, never looked at Cumulative Delta didn’t know how to use it thank you for the free lesson. sorry all I can afford are the the free lessons. I sim trade with sierra charts I have numbers bars I will use this, I am a long way from trading live.

    1. Thanks for the comment Shawn! Of course, I’m here to help. You’re going about the process in the right order. SIM trade a ton, screen time is vital to becoming a successful trader. Don’t ever go live if you’re trading with money you can’t afford to lose. The added pressure will greatly decrease your odds of success in this business.

      1. Hey Adam, I recently subscribed. I have done a ton of research on the internet and read numerous books but I have to admit that you do an amazing job here and the information you share is priceless. I am sim trading as well for currencies but I’m thinking of switching to futures. I am grateful and thankful to have joined.?

  2. Thanks Adam, as always you are providing a great content for free. This is one of the rare websites which provide such a quality stuff. Keep up with good work. I hope I will be one day a member of your PRO class.

  3. Hey Adam,

    great post. Is there a way to combine your delta chartbook with the footprint chartbook, so they both appear on the same chart?

    Can’t figure this out…

    Thanks

    1. Normunds simple answer is yes but it depends on what platform you’re on. On Sierra Charts it’s Cumulative Delta Bars – Volume study. On Motive Wave it’s just called cumulative delta. These are the only two platforms I use so I wouldn’t be able to help you on any other platforms.

    1. Hi Mark, thanks for the comment. Volume delta will work on equities but I’m not sure about TOS. TOS doesn’t offer volume delta unless you’re using something created by a third party. Ultimately I tell traders that want to trade order flow to get onto a platform that has all the bells and whistles like MotiveWave or Sierra Charts. Doesn’t mean you still can’t trade with TOS but you would be watching your charts from a separate feed. As of right now, most brokerage’s proprietary charting platforms are subpar if you’re trying to get into order flow.

  4. Hi Adam,

    Awesome content ! You have explained about Delta in simple yet detailed manner. Also i looked into your guide on footprint charts, another great content. I have watched YouTube videos in the past on footprint charts but none gave me a direction on trading with them. I would like to know more about trading using footprint charts and order flow trading. I tried to subscribe to your webinars but not working , if you have past webinars or videos on foot print trading, i would like to watch them.

    Thank you.

    1. Thanks Ajith! I will be posting some new videos in the near future. If you’re an insider you will receive an email when they’re published.

  5. Hello! Love you post! Very educational. I trade small cap stocks and would love to use CD, do you think I can use Sierra charts in order to be able to use the CD?

  6. Thanks for the comment David. I personally use exhaustion (delta lagging price) when looking for countertrend setups. Absorption (Price lagging delta) I use on strong trending days to find setups with the trend. I wouldn’t say one is more valuable than the other…

  7. Shubhanshu Jaiswal

    Hi Adam,

    Very well written article and I have been testing it in Tradingview for Bitcoin charts and accuracy is good. However I would like to know whether it will work on Index Options? As Delta Indicator will not work on Index chart, can I use the indicator on Future charts and trade options?

    1. Thanks for the comment! Yes Delta works on index futures as that’s what I trade. I’m not familiar with TradingView so you would have to reach out to them. I use MotiveWave, also know NT and Sierra have cumulative delta. NT might be a third party add on.

  8. Thanks Adam! Enjoyed the read and definitely helped to clarify Order Flow Trading even more for me! Can’t wait to implement this into my strategy!!

  9. Thanks Adam for the article
    This is very helpful
    Where could I get a cumulative volume delta indicator with divergence signals/alerts for Ninjatrader 8? Any leads?

    1. Hi Geoffrey. I’m not as familiar with NT as some other platforms. I’m guessing you’d have to have a third party write a script for you.

  10. Thanks Adam, just became an Insider, awesome content. Even though I use a different platform(Quantower), definitely appreciate and really enjoy reading your content. One of the best and most comprehensive information out there by far. THANK YOU, THANK YOU, THANK YOU.

    Andre

  11. Hi!
    Really informative article, and I like a lot how you illustrated Absorption and Eyhaustion so well in the charts. Keep on, you are actually very good at explaining those things 😉
    Best of luck
    Axel

    1. Thanks for the comment. I personally don’t have the actual min/max values on my chart, but obviously I can see it visually on the cumulative delta indicator.

  12. Wonderful write-up! I’ve been hearing, here and there, that CVD makes more sense to use on lower timeframes. Any comment on what timeframes are too high to use CVD on? Also, how far apart is too far apart (days, hours, weeks?) to consider a CVD divergence valid?

    1. Hi Calvin, thanks for the comment! Personally I only look for divergence from the last swing point.

      Delta can be valuable on a lot of different time frames, depending on what you’re using it for… If you’re looking at trading divergences I would look at 5 minute and lower.

  13. Thanks Adam for the excellent piece here!

    I am currently using Ninja Trader and paying $15 monthly for CME data feeds. I will definitely be looking at Sierra charts and MotiveWave.

    If I am only interested in Volume data (Delta, Cumulative Delta, Volume) and Footprint Charting, which of the 2 above would you recommend.

    Also, the chart in your article where you are looking at the Delta bars compared to price, which delta is that? Cumulative delta or is it the delta of that candle.

    Cheers!

    1. Thanks for the kind words and comment Sharif!

      Honestly they are both great platforms. Motivewave has a newer GUI than Sierra and can run on Mac. I’m currently on MW because I wanted something native to Mac.

      All of the charts in this post are cumulative delta and the platform is Motivewave.

  14. Brilliant presentation and summation.
    Fresh and uncomplicated approach in handling the concept.
    You are able clear areas which otherwise are a bane even for many .

  15. Thanks for the tutorial. It explained the basics well and was just what I needed after discovering this new tool. Thank you.

  16. Do you have any recommendations for a set up on tradingview? Total newbie but I’d like to try this out, however tradingview seems to be lacking in this kind of thing. Thanks

    1. Morning Cheyenne, thanks for the comment. When it comes to Delta and Volume Profiles, you’re out of luck with TradingView unfortunately.

  17. Thank you for the clear explanation and example. Order flow will definitively be take into consideration in my trading arsenal

  18. Hi, Adam,

    Do you have the Volume Delta indicators on Tradingview? I use Tradingview extensively and am in tight budget to subscribe for more chart services at this time. Thank you for reading this message.

    Regards

  19. Hello concepts expressed in a simple and effective way. Your explanations are better than many gurus who charge a lot of money. Thank you

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