You may have wondered until now, or if not, in the title: what is exactly OI and CVD? In this article I’ll be explaining not only what they mean, but also how I use them in confluence with regular TA, or even FA in case we’re talking about smaller cap alts driven by news. So let’s dive in and start by defining these concepts (Coinalyze has all you need):
- OI: amount of contracts open in a market. OI going up means more money is entering in the market, it going down means money is leaving. Nothing more nothing less.
- CVD: delta is the difference between longs and shorts (or buyers and sellers). The cumulative part of the name comes from the fact that values of previous candles are also added, so you can see the evolution of delta. Lastly, I’m also separating spot and futures/perps CVD in this article
Let’s talk as well about the correlation between the two, so you can experiment outside of my explanation:
- OI up, CVD up = longs opening
More positions, more buyers = longs opening
- OI up, CVD down = shorts opening
More positions, more sellers = shorts opening
- OI down, CVD down = longs closing
Less positions, less buyers = longs closing
- OI down, CVD up = shorts closing
Less positions, less sellers = shorts closing
When to use it?
Now I’ll move on and write about what conditions make me use these tools the most:
- First and foremost, not in ranging markets. It’s totally useless.
- Second, I have used Coinalyze for both BTC and alts. In my honest opinion, it’s better for alts, but feel free to test on any coin that’s decently liquid.
Back to the first point, I like to use it on volatile markets, after an impulse and making sure my conclusions are aligned with the fundamental reason of why price is moving. That’s why this article is also directed to narrative/news traders, which have been gaining traction lately.
How to use it?
I think that was enough of an introduction, so let’s get into what I look at, using BIT as an example. If you’re going to trade news, I’ll say again to make sure you have fundamental confluence, always.
I like to divide the cycle of a narrative in 3 phases:
- In a steady uptrend:
— OI grows due to new position being opened, more money flowing in.
— Futures/perps CVD increases due to usage of leverage
— Spot CVD can catch up, or it can not.
If it doesn’t, it’s usually a sign to fade the move.
The last point is a key takeaway for this thread: “Spot and futures CVD diverging is never a good sign”.
- When price is more stable:
— OI is still growing steadily, and so is perps CVD.
— Spot CVD is actually decreasing.
I just said, divergences are not a good sign. Well, there you had it. A brand new and shiny top and late longers are starting to come in. Now what?
- First signs of reversal:
— OI tops out, no more interest as market is already exhausted
— CVDs start decreasing as well
Longs will be tired of waiting and exhausted or eventually liquidated due to smaller moves inside the consolidation.
And then, we get back to phase 1, with a sole exception, which is that there can be a slower bleed instead of a fast retracement.
And these are the 3 stages to identify, you can either long (1) until it’s finished — riding the trend — or you can prepare your position in (3).
Once more, don’t use this alone, try to combine it with your trading style as none of this is serious advice, thus just my rants.
I think I’ve explained enough today, so it’s time to wrap up everything:
“Spot and perps CVD diverging is never a good sign”
“Money rotates from longs to shorts — or vice versa — by first flowing out of the market, and then flowing in again on the opposite side”
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