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In order flow analysis, cumulative delta refers to the cumulative sum of the delta values of individual trades. Delta represents the difference between the volume of buying and selling orders at a given price level.
Traders use cumulative delta to gain insights into the overall buying or selling pressure in the market. By tracking the cumulative delta, they can identify whether there is more buying or selling activity at a particular price level.
Cumulative delta helps traders understand the imbalance between buyers and sellers, which can provide valuable information about the strength of a trend or potential reversals. It can also help traders identify support and resistance levels and make informed trading decisions.
For example, if the market is in an uptrend and the cumulative delta is increasing, it suggests that there is strong buying pressure, indicating a continuation of the trend. Conversely, if the cumulative delta is decreasing or becoming negative, it may indicate weakening buying pressure or increasing selling pressure, suggesting a potential reversal or a change in market sentiment.