A cornerstone of order flow analysis, Cumulative Delta summarizes buying vs selling activity can help traders determine market direction, trend strength, support & resistance areas and more.
The Delta Δ
Delta refers to the difference between buyers & sellers:
- Delta is positive when buying outweighs selling
- Delta is negative when selling outweighs buying
Cumulative Delta consolidates accumulating delta information and then plots this information visually as a chart indicator. By recording and displaying a running tally of whether buyers or sellers were in control, and by how much, order flow traders can better extrapolate the flow of a market.
The chart above shows 3 days of price movement on a 30-minute time frame for Micro E-mini S&P 500 futures (MES).
- With the Session display, Cumulative Delta is shown similar to a traditional candlestick chart. The closing price of the previous bar is carried over to the open of the current bar as the delta accumulates.
- With the Bar display, Cumulative Delta is plotted more like a histogram. Each new bar has an open of 0 and the delta accumulates over the course of each corresponding price bar.
Cumulative Delta in Action
Cumulative Delta is utilized in a multitude of ways by technical analysts. Each approach will vary based on the individual trader, market and timeframe traded.
In the example below, divergence is spotted between price and Cumulative Delta indicating a potential market reversal.
- In the top panel, price data is shown and price puts in a new low. A red arrow drawing object has been added to highlight the move.
- In the bottom panel the Cumulative Delta is plotted but puts in a higher low relative to the same starting point. A green arrow drawing object has been added to highlight this move.
This example can potentially be interpreted as a bullish signal, helping longs to avoid a market headfake or getting “shaken out” of a position by confirming a bullish bias. Alternatively, it could be interpreted to initiate a long position.
Please note: As with any technical indicator, Cumulative Delta can produce false signals and risk management should remain paramount when trading unpredictable markets.
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Cumulative Delta is included with NinjaTrader’s Order Flow + suite of premium technical analysis tools, including Volume Profile, Volumetric Bars, VWAP and more.
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