Volume Delta – The Ultimate Order Flow Indicator

Chart of volume delta indicator

Volume delta is one 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 delta indicator to manage your trading positions.

What is Volume Delta?

Volume Delta is the difference between buying and selling power. 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.

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 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.

Conclusion

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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Adam

Adam is the founder of Jumpstart Trading. He began his trading career in 2003 as a proprietary equity trader for GPC, which at the time was the second largest prop firm in the United States. While with the firm he achieved top 10 performances and became one of the youngest trainers for the firm. In 2008 he moved on to trade his own capital while developing multiple trading strategies and algorithms. He has quickly become recognized as one of the elite order flow traders in the industry. Today Adam primarily focuses on U.S. Index futures.

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 Justin, thanks for the comment. I have it set for regular and after hours, so a 24 hour session. For my trading strategy I don’t look at the value, I look at the change in value relative to price. If cumulative delta is at -9,000 or +10,000 it doesn’t matter to me.

          1. Thanks for your response.

            Since it’s cumalative, wouldn’t it become less responsive by the last hour of trading…meaning that new volume is only going to have a slight effect on 23 hours of already accumulated delta?

          2. You’re correct in that it’s cumulative but less responsive not really. I look for divergence (absorption & exhaustion) when I use cumulative delta so the overall value isn’t something I personally look at.

      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. Edmund,

      Great question! I guess my question to you would be why do you want to trade a CFD? I never have but I know you’re going to have less liquidity and they are under regulated. Always just seemed like additional risk for no reason to me. If you want to trade CFD’s because of extra leverage it’s not a good idea.

      I really don’t know how CFD volume/data is even reported to a platform. You would have to ask your broker. If you have a reason you will only trade CFD’s then I would probably just look at the parent instrument it’s tracking and use cumulative delta on that.

    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. When you spot Absorption or Exhaustion, how do you enter a trade? Do you wait for Price to break a Swing Hi/Lo, for Cumulative Delta to transition from Negative to Positive/Positive to Negative, or what? I can spot them but just don’t know how to enter a trade.

    1. Thanks for the comment Pat. It would depend on your trading strategy, something you will have to develop. I don’t think using absorption or exhaustion alone is going to result in a profitable trading strategy. My personal strategy is taught to Order Flow Pro members.

    2. Since delta is just a piece of an overall trading strategy, you would enter the same way you would without delta involved. What I mean by this is say you didn’t have a delta indicator at all, then how would you enter a long trade? You would wait for your timeframe to pull back to support such as a higher swing low in an up trend, or the bottom of a range.

      Now add delta into the mix and you would look for synergy between these two signals. For example, if you see a swing low forming and also notice sell absorption this gives you another dimension of confidence to enter the trade.

  7. Hi Adam,
    I think the information you provided is very well presented.
    But I looked into cumulative delta for a while already and cannot make any use of it. Delta does not lead price (how could it)? It just adds another way of describing what _has_ happened, not what _will_ happen. I have accepted that.
    But the real reason I am writing this is not to critize anything or anyone. Instead, I would really like to know how you explain those days where the market just behaves in an “ordinary” way, i.e. some nice swings, maybe going slightly up at the end, while the cumulative delta _drops like a stone_ all day. What is going on there on how do you explain or even exploit this. I have a professional data feed btw.
    Thanks!

    1. Thanks for the comment Bill. Delta is one piece of the puzzle. It depends on what your trading system is. I don’t believe you can build a strategy just off of Delta.

      If delta is dropping all day it’s simple, more people are hitting the bid than taking the offer. Price still can go up as the traders hitting the bid are most likely short term while longer term traders come in on the bid with more aggressiveness than those hitting the bid. This is absorption as discussed in the post. Typically you will see it balance as traders get squeezed out of their short positions. Won’t always occur same day.

      Ultimately I trade on very short time frames, which is all I can really speak to. Generally order flow indicators like delta and tick are going to be most useful on shorter timeframes. The value of most order flow indicator begin to diminish as you go further and further out. On shorter time frames you’re going to notice more swings.

      Again, this is not a trading strategy. It’s one of the tools I use to look for absorption and exhaustion and to manage my trades when I’m in a position. Example: If I’m long and delta is dropping yet the market is going up I’m going to be more patient on exiting my position as I look for Delta to come back in balance as some of the short term traders get squeezed out.

    2. Delta can absolutely lead price, but to understand why it happens, you can’t just consider aggressive buyers/sellers in the market but also the other players i.e. the market makers. Consider the fact that bid/offer price can and does move with 0 volume and the candle will pain with just 1 volume and you’ll understand why this can happen. If market for one side of the price action aggressively marks up/down price by filling the spread as fast as liquidity takers are removing offers then you’ll have wide spread candles on relatively low volume. Watch how Bitcoin moves as an extreme example of this in action on any day. MOST volume gets faded in Bitcoin so the primary movers of price in either direction are the market makers not the market participants. When this happens, the result on chart will be an outsized price move relative to the volume, or price leading delta.

  8. Nice article, Adam. Thanks.

    After studying delta for a few weeks, I am thinking of it like this:
    1. Delta lagging price – traders have lost the will or they’re getting overwhelmed.
    2. Price lagging delta – traders have the will, but aren’t being rewarded due to absorption.

    So my question is, although both are divergences and can start a new high/low. I’d say that the more reliable of the two is option 1. Reason being, if the absorption stops then price could still rally onwards.

    Also option 1 is more likely to form a strong high/low whereas 2 is more likely to create a weak high/low generally speaking.

    Would you say this is a reasonable assessment or have I missed something? Cheers.

    1. 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 even though I trade more exhaustions setups than absorption. That’s simply because only about 30% of days are what you would call “trending” days.

  9. 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.

    2. TradingView doesn’t have a true cumulative delta indicator. There are some that get it pretty close by approximating and since TV doesn’t provide tick level volume data, indicator creators have to make a best effort. As for options, you can use CD on the primary instrument and make your options trades accordingly. But as for working on options themselves you’re one step removed from the instrument so measuring volume delta on those instruments wouldn’t be meaningful IMHO.

  10. 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!!

  11. In your absorption example, this does not look like delta absorption. You are correct that price is making new highs through that positive delta zone AND that the subsequent selling doesn’t result in new lows in price as it does in delta. However, it appears the reason the buyers were able to push price so aggressively on the up move is that the sellers aren’t providing sufficient liquidity through that zone as price squeezed above the previous highs (e.g. they were caught off guard) and the buyers were able to take liquidity faster than they could provide it through the squeeze. However on the down move, the buyers provided just enough liquidity to hold the lows, but also they didn’t really absorb much selling as the spread on the candles are nearly as tall as the buy side bars, in spite of the negative delta being relatively weak.

    So It looks like the dynamic going on here is simply price moving through an area of weak liquidity in both directions. If there is a divergence here, I would say it was more on the upside move than the downside move which would explain the low of price and delta being divergent. When volume is being absorbed, this requires either a tight spread on a candle by candle basis or a hard stop at a low as volume is unable to breach a desired price level due to market makers providing overwhelming liquidity.

    1. Thanks for the comment Zundra. The example in the post is actually a great example of absorption. The sellers were aggressively hitting the bid by delta breaking the swing low. However, the buyers were more aggressive than sellers in the market, demonstrated by price going up.

      1. Wherever there is absorption, there is a stopping force such an an iceberg order or a large limit order in place in an attempt to halt / reverse price or fill a large order. The reason this example isn’t absorption is because the spread on the bars when price is retracing is wide compared to the delta spread. So there simply isn’t enough selling with so much give in price for this to be absorption. In reality every buy and sell order is “absorbed” to some extent since price would simply keep moving in one direction if this were not the case. However, for the academic use of the term for there to be absorption there has to also be high volume AND a stopping force on this high volume. You can’t really classify absorption solely based on CD since it’s just the diff between buying/selling. To truly see absorption you also need to see relative delta as they work hand in hand. Volume will tell you magnitude, and delta will tell you “what” is being absorbed.

  12. One more observation. You mention that you want to see delta making new highs as price makes new highs else this could mean buyer exhaustion and is an early indication of a potential reversal. But doesn’t this point overlook the true reason price moves in that market makers mark up price when they have sufficient inventory to justify doing so and ditto for the inverse. The more buyers that pile into a security, the more likely a reversal as market imbalances form and the delta resolves as the sell side market makers try to get paid (again ditto for the inverse). With that said, it seems like a better indiction isn’t that delta is making higher highs along with price but rather that delta isn’t making lower lows along with negative delta. For example, in an up trend, price making higher highs along with delta is normal. However, price marking up while delta is diverging indicates that the market makers are marking up price in spite of sell side action taking place (absorption) which is actually a bullish signal (market participants may not be interested in buying, but the market is forcing buyers anyway). So the inverse is also true, is delta is making higher highs, but price is not, this indicates sell side market makers are absorbing buy side volume and would indicate a reversal is looming.

    1. Price goes up because the buyers are more aggressive than the sellers. Market Makers don’t try to move price, they simply provide liquidity and are looking to make the spread. They aren’t speculators.

      Price moving up and delta lagging is exhaustion.

      1. I have to disagree with you again here Adam. I realize it’s a common idiom, but the reason price moves isn’t because of an imbalance in buyings and sellers, it’s because of an imbalance in the market. Since you’re excluding market makers from the equation, I’m assuming you’re referring to buyers and sellers hitting the bid/ask with market orders. However, leaving the market makers out of the equation (which is the reason there can never be more buyers than sellers or vice versa) is leaving out a massive piece of the overall puzzle. There can’t be more buyers than sellers in the market because when I hit the ask, I’m not buying from Joe Retail (probably, unless he put in a small limit order) but rather from a market maker. Now this market maker is short shares/contracts and of course wants to profit from the spread so the goal is to mark down price until his inventory is flat, hopefully with a profit. So market makers are in fact the only force in the market that moves price as market participants hitting the bid/ask are simply clearing liquidity…which causes gaps in the orderbook, which get filled by market makers marking up / down prices e.g. moving price.

      2. Just had a thought on the more buyers than sellers in the market moving price. If more buyers than sellers in the market causes price to move, how do you explain delta divergence? If market makers aren’t moving price, this only leaves market orders. So more buyers than sellers implies that more market buy orders than more market sell orders would tick price up and vice versa. If this were the case then price would never diverge with delta. Another way to see market makers moving price is to watch a thin market trade on the DOM. It’s a pretty frequent occurrence (especially at night) for /NQ to move several ticks without any actual orders to accompany the tick move.

        1. Thanks for the comment Zundra. It’s not more buyers than sellers, there’s always a buyer and a seller on every transaction. We both agree on that. In the absorption example price goes up because the buyers were more aggressive than the sellers. Yes, you could also say there was less liquidity on the offer, it’s pretty much saying the same thing.

          In terms of market makers moving the market I completely disagree. I knew a lot of market makers 20 years ago that worked in the pits in Chicago. Market makers simply try to make a spread, if they do anything else they’re not market makers they’re speculating. I believe the only thing that has changed in the past 20 years (excluding NYSE Stocks) is that market makers now use algorithms.

  13. 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.

  14. Hi Adam, so this screenshot is for ES on 01.04.2022. Pls refer to the time period between 08:00 and 10:30 (CT). It seems like delta is constantly moving inversely to price. I see MANY such examples when looking at historical delta / price movements. Having done some further research, it sounds like this is happening when passive buyers / sellers just lower their bids / increase their offers. How do you interpret this phenomena and how would you advise to use this data in making trading decisions?

    https://paste.pics/0898944c0347860c6ce80db74310773f

    1. Thanks for the comment JP. Here’s how I would interpret it. When you see an inverse relationship it’s typically on a stronger trend where there’s institutional investors buying or selling and retail/prop traders fading moves.

      At some point you will see it unwind and come back into balance but sometimes it can take a while. All those traders who were taking the offer are going to have to cover at some point if the pain becomes large enough. I say institutional and retail traders but in reality it’s a combination of everyone trading, but the majority of those market orders are going to be retail.

      I marked up your chart here: https://drive.google.com/file/d/1ULuoaki7X5CAQOtJOiNstFTROx3cUr_-/view?usp=sharing

  15. 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

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