What Are CVD Divergences?

Cumulative Volume Delta (CVD) divergences occur when the price action and the CVD line move in opposite directions, revealing a mismatch between visible price trends and underlying aggressive buying/selling pressure. CVD tracks the running total of volume delta (aggressive buys at the ask minus aggressive sells at the bid). Divergences signal potential trend exhaustion, hidden accumulation/distribution, or upcoming reversals, as the aggressive order flow contradicts the price movement.

Traders identify divergences by comparing swing highs/lows in price to those in the CVD indicator (usually plotted as a line or histogram below the price chart). These are similar to classic oscillator divergences (e.g., RSI or MACD) but are based on real order flow data.

Types of CVD Divergences

There are two primary types: regular (classic) and hidden. Regular divergences often signal reversals, while hidden ones suggest trend continuation.

1. Bullish Divergence (Regular/Classical Bullish)
- Price: Makes lower lows (downtrend appears strong).
- CVD: Makes higher lows (net buying pressure is increasing despite falling prices).
- Interpretation: Sellers are aggressive but unable to push prices much lower—buyers are absorbing the selling (hidden buying pressure). This suggests the downtrend is weakening and a reversal upward is likely.
- Trading Implication: Potential long entry or reversal buy signal. Often seen at market bottoms.
2. Bearish Divergence (Regular/Classical Bearish)
- Price: Makes higher highs (uptrend appears strong).
- CVD: Makes lower highs (net buying pressure is decreasing).
- Interpretation: Buyers are aggressive, but prices aren't sustaining new highs—sellers are absorbing the buying (hidden selling pressure). This indicates weakening momentum and potential downward reversal.
- Trading Implication: Potential short entry or reversal sell signal. Common at market tops. 3. Hidden Divergences (Less Common but Useful for Continuations)
- Hidden Bullish: Price makes higher lows (pullback in uptrend), but CVD makes lower lows → Suggests continuation of uptrend.
- Hidden Bearish: Price makes lower highs (pullback in downtrend), but CVD makes higher highs → Suggests continuation of downtrend.

These are advanced and less frequently discussed, but they can filter for trend-following trades.

How to Spot and Trade CVD Divergences
1. Chart Setup: Use platforms with accurate order flow data (e.g., Bookmap, NinjaTrader, Sierra Chart). Avoid approximations on TradingView for a precise delta.
2. Identification: Draw trendlines on price swings and CVD swings. Look for breaks in alignment at key levels (support/resistance, volume profiles).
3. Confirmation: Never trade divergences alone—combine with:
- Price action (e.g., candlestick reversals, breakouts).
- Other tools (Volume Profile, RSI oversold/overbought, footprint charts for absorption).
- Context (e.g., at session highs/lows or news events).
4. Examples in Footprint Charts: Divergences often appear clearer with footprint (order flow) charts showing per-price-level delta. Limitations and Tips
- False Signals: Divergences can persist in strong trends (e.g., price ignores CVD temporarily due to limit order absorption).
- Best Markets: Works well in liquid instruments (futures like ES/NQ, crypto perpetuals) on intraday timeframes.
- Risk Management: Use stops, wait for price confirmation, and backtest. Many traders note that divergences provide context, not standalone entries.
- Pro Tip: Reset CVD at session start for intraday clarity, or use multi-timeframe analysis.

CVD divergences offer a powerful edge for understanding "who's really driving the market," but success comes from experience and confluence with other analyses.