CVD Divergence Strategy.1.mm

This trading strategy identifies divergences between price and a custom Cumulative Volume Delta (CVD) indicator. It enters long on bullish divergences and short on bearish divergences. Positions are closed either by a reverse divergence signal, a 5% stop loss, or a 10% take profit.

To trade this strategy manually :

• Indicators and Setup:
  • Add a "Cumulative Volume Delta (CVD)" indicator to your chart. Since the script uses a custom calculation, find a popular version from TradingView's community indicators.
  • You will be visually identifying pivot points on both the price chart and the CVD indicator. A pivot is a swing high or low.
  • The pivot points you compare must be between 5 and 60 candles apart.
  • The pivots are defined by having 7 candles to the left and 3 candles to the right of the swing point.
• Long Entry Conditions (Enter on either):
  • Regular Bullish Divergence: Price makes a lower low, but the CVD indicator makes a higher low.
  • Hidden Bullish Divergence: Price makes a higher low, but the CVD indicator makes a lower low.
• Short Entry Conditions (Enter on either):
  • Regular Bearish Divergence: Price makes a higher high, but the CVD indicator makes a lower high.
  • Hidden Bearish Divergence: Price makes a lower high, but the CVD indicator makes a higher high.
• Exit Conditions (Exit on whichever comes first):
  • Opposing Signal: If you are in a long position, exit when any bearish divergence signal appears. If you are in a short position, exit when any bullish divergence signal appears.
  • Take Profit: 10% above your entry price for a long, or 10% below for a short.
  • Stop Loss: 5% below your entry price for a long, or 5% above for a short.

While the base strategy provides raw divergence signals, you can significantly increase its effectiveness by adding layers of confirmation and context. The goal is to filter out lower-probability signals and improve your risk-to-reward ratio on the trades you do take. Instead of trading every signal the script generates, you will act as a human filter, only taking the A+ setups.

Here is a plan to enhance the core CVD divergence logic for manual trading:

• Filter Entries with Market Structure and Key Levels: Don't take a divergence signal in isolation.
  • For a bullish divergence, look for it to occur at a pre-identified support level. This could be a horizontal support line, a Value Area Low (VAL) from a Volume Profile, or a key Fibonacci retracement level. The signal is strongest when price is reclaiming a key level after the divergence forms.
  • For a bearish divergence, only act on it if it forms at a clear resistance level, like a Value Area High (VAH), a daily high, or a previous swing high. The entry is confirmed when price fails to break above that resistance and market structure shifts bearishly.
• Demand Multi-Timeframe Confirmation: A signal on your trading chart (e.g., 5-minute) is far more reliable if it aligns with the higher timeframe (e.g., 1-hour) narrative. Before taking a 5-minute bullish divergence, check if the 1-hour chart is also at a support level or showing signs of bullish momentum. This prevents you from fighting the dominant trend.
• Refine Your Entry Trigger: The script enters as soon as a divergence is detected. Manually, you can be more precise. After a bullish divergence appears, wait for a strong confirmation candle, like a bullish engulfing or a hammer, to close before entering. This confirms that buyers are actually stepping in and reduces the chance of entering a failing signal.
• Use Structural Exits, Not Fixed Percentages: The script's fixed percentage stop-loss and take-profit are inefficient.
  • Place your stop-loss structurally. For a long entry, set it just below the price low of the bullish divergence. For a short, place it just above the price high of the bearish divergence.
  • Set your take-profit at the next logical area of resistance/support. For a long trade, this could be the next swing high or a High Volume Node (HVN) on the volume profile.

This strategy is best suited for discretionary day traders and short-term swing traders who actively analyze charts to anticipate shifts in momentum. The style is proactive and technical, focusing on identifying potential market turning points or trend continuations before they become obvious.

It is ideal for traders who are already proficient in technical analysis and want to add a layer of order flow confirmation to their setups. Because it relies on interpreting Cumulative Volume Delta (CVD) in relation to price, it appeals to those who want to understand the underlying buying and selling pressure driving the market. This approach is less for complete beginners and more for intermediate traders looking to refine their entries and exits with a more sophisticated, volume-based tool.

This strategy is built on identifying discrepancies between price action and underlying volume pressure to find high-probability entries.

• How it works: The strategy automatically enters trades when it detects a divergence between price and the Cumulative Volume Delta (CVD) indicator, signaling a potential reversal or continuation.
• How to use it: It can be fully automated, used with alerts to flag potential setups for manual review, or traded entirely by hand by visually spotting the divergences on your chart.
• How to optimize it: Enhance the raw signals by confirming them with market structure. Only take bullish divergences at support and bearish ones at resistance, ensuring they align with the higher timeframe trend.
• How to manage risk: Replace the fixed percentage stops with structural ones. Place your stop loss just beyond the price pivot of the divergence and set your take profit at the next key support or resistance level.