Cumulative Delta Indicator Guideline

Cumulative Delta Indicator for MT4 is a custom indicator that tracks market movements. It was developed in the 1980s for stock markets and became adaptable to other financial instruments such as Currencies, cryptos, and derivatives. Furthermore, the cumulative Delta indicator MT5 is extremely useful during trading sessions with high volume. But it’s almost useless in low-volume sessions. On the other hand, this indicator in tradingview allows users to spot potential significant reversals in the market trend.

What is the Cumulative Delta indicator?

The Cumulative delta indicator also known as the cumulative volume delta indicator is a technical indicator. It tracks market movement through the volume of Bids and asks. The Delta referred to in the indicator’s name is the difference between the buying and selling volume for every price level. Therefore, the indicator collects cumulated data by recording a cumulative tally of these differences in the bids and asks volume.

Furthermore, the cumulative delta distinguishes between 2 main categories of order: passive and aggressive orders. Passive orders are generally limit orders whereas aggressive orders are considered market orders. To make things clearer, buying at the available ask or selling at the offered bid are considered aggressive orders. However, passive orders are put aside by the indicator as they aren’t executed immediately and cannot be displayed on the chart.

The formula used by the indicator can be simply described as:

Aggressive Buy Orders – Aggressive Sell Orders –> The outcome is simply the DELTA that will be cumulated and displayed later on the chart.

Based on this formula, the Delta could be either negative or positive. A positive delta means that buying outweighs selling whereas a negative delta means that selling outweighs buying.

How do you use it?

As we stated earlier, the Cumulative Delta indicator simply describes the reality of the market. In other words, did the volume of transactions cause an increase in the asset price or a decrease. So, the interpretation is quite obvious, it’s either an increase and therefore a potential uptrend or a decrease and therefore a potential downtrend.

The indicator displays customizable colored bars under each candlestick. These bars are normally colored green or red which stands for a bullish or bearish indicator . These 2 colored bars are separated by a ticked line which represents a variation of 0.

In other words, if the bars are above the line, the current price direction is an uptrend even if there are red bars in it. However, if the bars are below the line, this indicates a downtrend. The outcome should look something like this. The chart shows an uptrend with a lot of fluctuations followed by a downtrend. But looking at the indicator, it displays inequivalent length bars that are diminishing as shown under arrow A. The bars are still diminishing until they reach point 0 where the indicator announces the start of a downtrend.

Download Cumulative Delta for MT4

Cumulative Delta Indicator for MT4 is a quite powerful tool. It can identify possible trend reversals when no pattern is visible. In the following example, we’re analyzing the EURO USD H1 chart. There are few fluctuations in the Cumulative Delta indicator with a low volume going under and above the 0-line to ensure of the next trend. However, these fluctuations soon disappeared as the bears took over the market announcing the start of a downtrend. The trend started with a low volume below the 0-line and then started increasing significantly until the bears are exhausted. Therefore, the bulls started pushing back which made the volume decrease for a short period and then flip above the 0-line, announcing the start of an uptrend. The Cumulative Delta indicator MT4 has successfully detected 2 trend reversals when no specific pattern appeared. It’s saving the traders from catastrophic losses during that sharp downtrend.

Download Cumulative Delta for MT5

Cumulative Delta indicator for MT5 does also the same job, the platform is just more modern. Nevertheless, the Cumulative Delta indicator MT5 does detect potential trend reversals where no pattern could indicate it.

In the following example, we’re observing the EURUSD H4 currency chart. On a wider scale, the fluctuations disappear compared to a 1 Hour timeframe or less. As observed, almost no fluctuation appears on the indicator’s chart, it’s either an uptrend or a downtrend. Starting with a downtrend that lasted a few days up until the 24^th of Jul, a downtrend during which many rallies occurred. Then a true uptrend started, but it was short and the volume wasn’t significant as the length of the bars show.

However, that uptrend didn’t last long as a sharp downtrend started leading the price to drop significantly. Any trader who didn’t sell immediately or place a stop-loss order should have suffered catastrophic losses. The Cumulative Delta indicator MT5 detected a significant increase in the volume when the downtrend started. The reason behind this increase is that everyone was rushing to sell the asset to lock in the highest possible profit. Whereas others mistakenly believed that it was just a correction and the price will increase even more. In other words, those who used the cumulative delta indicator MT5 were successful in identifying the reversal in the trend as no pattern. It indicates it appeared. Whereas, the others have suffered losses as they had no idea of what was truly coming.

Download Cumulative Delta for Tradingview

The Cumulative Delta tradingview does the same job as the version of MetaTrader. However, the Cumulative Delta indicator Tradingview displays the results a little bit differently. In the tradingview model, the results are displayed as a candlestick chart, a green candle means that the market price and volume are increasing whereas a red candle means that the market price and volume are decreasing.

Furthermore, there is no 0-line base, the candles are floating in the air of the chart. The results are the same, a series of green candles which are higher than the previous series of red candles means that the current trend is upward in Tradingview chart.

Conclusion:

The Cumulative Delta indicator is a trend-following indicator: it evaluates the aggressive orders in order to help traders make strategic decisions.
The indicator evaluates at the same time the current market price and the transaction volume.
The Delta is the net difference between the volume of selling and buying of aggressive orders.
The indicator is available for MetaTrader 4 (MT4), MetaTrader 5 (MT5) and Tradingview.

March 10, 2023