Devs Cumulative Delta candles with Moving Average and Divergence

12 jul 2023

DELTA = BUY Volume – SELL Volumes

Delta = Positive => Aggressiveness on the Buy side
Delta = Negative => Aggressiveness on the Sell side

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.

When there is more Buying than Selling (Delta=Positive), the price candle is Green and when there is more Selling than Buying (Delta=Negative), the price candle is Red. 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 but delta was actually positive and 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 buying than selling : 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.

What are Delta Bars?
Delta Bars is a candlestick representation of Delta. In other words, it has an Open, High (also called Delta Max), Low (also called Delta Min) and Close point in every candle (1min, 5min, 30min etc.)

The Delta Open in every candle is always 0
The Delta Close is the cumulative BUY less cumulative SELL at the close if the candle
The Delta Max is the maximum value of Delta during the candle session (lowest Delta Max possible = 0)
The Delta Min is the minimum value of Delta during the candle session (highest Delta Min possible = 0) The Delta bars are uncorrelated to the Tick Multiplier of the symbol.

Generally you would expect Price to move UP when Delta is positive and Price to move DOWN when Delta is negative. So what happens when the above rule is not followed. We have Divergence

Divergence:
Any two parameters that should be in sync (Price and Delta in this case) towards supporting a particular move (Up or Down) but are in reality not (in sync) form a Divergence


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

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. I just gave you a details regarding delta and delta bars.

What details would you see in the indicator??
When you apply this indicator on the chart, you will find the CD(Cumulative delta) candles, which move up and down the way price moves in a chart. Moreover, in case of a divergence, you will find a change in colour of delta candles. If the price is still green but the delta is negative, you will find a bullish divergence, marked with Yellow colour and if the price is red and you have a positive delta, you will have a bearish divergence, marked with blue coloured delta candle. Usually it has been seen that a repeated divergence generally depicts end of a trend or slow down of a trend.

Moreover, I have placed 2 moving averages in the script which you can customize as per your needs. I prefer 20 and 50 day MA for better accuracy as most reversals happen at 20 and 50 day MA.

This indicator works in almost all index, stocks, currencies excepting few where the volume past is invisible. This indicator purely works taking the buying and selling volume into consideration. Sometimes when you change the timeframe in chart, you may have to manually adjust for the display in chart.