Video Transcript:
Hello everyone, it’s Dale here. In this video, I’ll show you how to use cumulative delta to spot price reversals before the price even starts to turn. I’ll show you a couple of real trade examples, and by the end of the video, you’ll know exactly how to implement this into your own trading strategy, no matter what that trading strategy actually is. Right? So, let’s get to it. In my opinion, the best way to use the cumulative delta is to look for divergence. What you want to see is a comparison of the cumulative delta chart, which is this one, with the price action chart, which is this one. You can place both charts in one trading window. For example, in this place, this is how the price was developing and this is the corresponding delta. It’s always right below it. All right, so the two charts correspond. Now, what I recommend doing is using a one-minute chart. This is a one-minute price chart right here, and below it a one-minute cumulative delta chart. All right, one minute in here. So it’s really detailed, and this way you can spot divergences very nicely.
Now, divergence appears when the price is going one way, like in here, where the price was going downwards and the cumulative delta was moving either sideways or upwards. Right? So this is divergence because the price is going downwards and delta is going upwards. And this is very important information the market is giving you in this example. What it is telling you is that price was dropping, but at the same time buyers were more aggressive than sellers, yet the price was still dropping, which is quite unusual, isn’t it? So you look for those unusual cases where delta is telling you something different from the price action chart. Most of the time delta and price action move in the same direction, but there will be cases where they don’t, and this is where you should expect the price to turn or something to happen, like in here. What the price tends to do is follow delta. So in here delta was rising and price was dropping. It was telling us that even though price was dropping, buyers were more aggressive. And as you can see later on, the price started to rise, but delta told us first, way before the price started to turn. Delta started to rise, and that’s why I’m saying delta is so useful, because it’s able to show us in advance what is likely going to happen.
Now here is another example of divergence. In this case, the price was rising, but in the same area at the same time, cumulative delta was dropping. This was telling us that even though the price was rising, sellers were more aggressive and they were selling. In the end, you can see that price started to follow delta, turned, and went downwards, but delta gave us this information in advance. So that’s how you can use divergence with price and delta.
Now let me go over to my charts and show you a couple of examples. Here is example number one. What you’re looking at is Euro futures, a five-minute chart. My favorite way to find strong support and resistance zones is using volume profile. In this video, I’m not going to talk too much about the volume profile setup, but I’ll focus on the divergence of cumulative delta and price. In this case, the volume profile is showing us two strong supports based on this significant volume zone and this significant volume zone. This is the first support and this is the second support. After you find those supports, you need the price to return back to them to test them. Let’s say the price is heading towards the first support and you are not sure whether to enter a long trade or not. So you look at the cumulative delta chart and try to spot a divergence there.
Let me open that cumulative delta chart. This is it. This is the place of the first support. This is a one-minute price chart and this is cumulative delta. Now let me do it like this. At the time the price is heading towards the level, this is what you see. This is what the price is doing on the one-minute chart, dropping towards that potential support. At the same time, you want to look at cumulative delta. If you look at this area and compare it to the same area on delta let me zoom it in a bit then you can see there is a clear divergence. Even though the price is dropping, delta is rising. This is a divergence. This is telling you that even though price is dropping, there are more aggressive buyers. And this is the confirmation you want to get. So when the price finally hits this support, you go long from there because cumulative delta confirmed that a reaction is most likely going to happen. All right, this is it. That’s the reaction almost 20 pips.
Coming to the second zone, coming to the second support which is here. That’s support number two. The price is heading towards that level. Delta is also dropping, so no confirmation yet. If I move the chart a bit, then as you can see, the price is rotating at the level, and at this time you’re also watching cumulative delta which is showing you that aggressive buyers are in control. They are buying heavily here. The price action chart doesn’t show you that, but cumulative delta does. So what you do is go long from here because you just got the confirmation, and finally, as you can see, the buyers started to drive the price up first and there was a nice reaction to that second support. But if you didn’t have delta here, you wouldn’t be able to tell that buyers were very active. So that’s the first example I wanted to show you on the Euro futures.
Hey guys, I hope you are enjoying the video. If you want to get your hands on my cumulative delta and order flow software, you can get it along with my Order Flow trading course on my website. It is at trader-dale.com. If you click “Trading Course and Tools” it will bring you to this page. Scroll down a bit and here you can get the Order Flow pack, which includes the Order Flow education, my exact strategy from A to Z, including Order Flow software, cumulative delta software, and volume profile software. All right, let’s get back to the video.
Another example is on the Australian dollar futures. Again, we are looking at a five-minute chart. As I was saying, using volume profile strategies is not mandatory here. You can use other strategies to find your support and resistance zones. What a lot of people do is look at daily highs and daily lows for potential support or resistance. So let’s check out the Australian dollar futures. We are looking at a five-minute chart here, and right here, this was Friday, and on Friday this was the high of the day. Let me print a line there. The high. Yeah, I know you can see there was a nice reaction to that high. But when you are trading and the price is approaching quickly to that significant high, that significant resistance or I should say potential resistance you’re not sure whether the price is going to react or not. When the price is close to that level, you want to open the cumulative delta chart and see what’s going on. You want to see a divergence that would tell you sellers are aggressive and likely to push the price downwards.
So let me load up the cumulative delta chart. This is what you see. Again, you’re looking at a one-minute chart. This is the price chart. This is the cumulative delta chart. The potential resistance is here. And here is the price rising towards that resistance. At the same time, cumulative delta is not really rising. It’s going sideways. So there is a divergence. Afterwards, delta starts to drop. This is where delta is dropping. So this is a very nice signal this divergence on delta that sellers are aggressive here and most likely are going to push the price downwards. Eventually they did, because price tends to follow delta. As you can see, delta told us that way before the price started to drop.
Now let me give you one more example, and that example is going to be on the ES, which is futures for the S&P 500 index. In here, there is a one-minute price chart and below that a one-minute cumulative delta chart. Imagine this scenario: price was going downwards here, bounced, and created this strong swing low. Now imagine you are thinking about trading from that potential support. You don’t know if this is going to work as a support or not, but potentially this looks like a strong level because the price bounced off it. So maybe you are thinking about trading long when the price hits that level again. What you do is, at the place where the price hits that support again, you look at delta. You look here and want to see some confirmation. In this case, you would like to see rising delta because that would tell you strong and aggressive buyers are jumping in, reacting to that support. But in this case, there is absolutely no sign of buyers. Delta is dropping. This is telling you not to trade this support. It’s a no-go. If delta started to rise, it would be a confirmation and it would be a divergence because the price was dropping. If delta was rising here, it would be a nice divergence and a signal to go long. But price is dropping and delta is dropping. This is telling you sellers are in control and you shouldn’t go long. So in this case, it is a warning signal. That’s how you can tell what’s going on who is more aggressive, buyers or sellers.
Now, what instruments to trade with cumulative delta? I know you guys may be thinking if you can trade Forex with it. Unfortunately, Forex is decentralized and it doesn’t provide bid and ask data. So unfortunately you can’t use cumulative delta for Forex. But you can use it for all futures markets because futures are centralized and they provide bid and ask data. You can use it for all kinds of futures: currency futures, indexes, crypto futures, gold, oil anything you can find. But unfortunately for Forex this doesn’t work, because Forex simply doesn’t provide you with bid and ask data, which are crucial for cumulative delta.
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