Volume Delta Reversal Trade Strategy

Volume Delta Reversal Trade Introduction

In this blog post, we will review a volume delta reversal trade strategy. Volume delta gives us an indication of the aggressiveness of market participants. Who is passive and who is initiative reveals market dynamics and its intention. But volume delta never works in the isolation, it is about what happens next, how the price reacts after the intention has been revealed. There are trade strategies, like the one we will describe in the DAX trade, that rely on Cumulative Volume Delta. Specifically, on its relationship with price direction. Since we will be using Cumulative Volume Delta, a great place to start and understand it better is in our previous post: “Cumulative Market Volume Delta”.

This article is based on the video down below:

Cumulative Delta Trade Strategy

Volume Delta Reversal Trade

Cumulative Volume Delta DAX Trade

In this trade, we will be looking at the range breakout trade that got reversed. Within the breakout, we have a nice twist, a little catalyst which was the false break to the upside first. Together with the downward-sloping trend, we are set for the breakout to the downside. As we are breaking down, we expect a follow through of the move, pickup in pace, simply sellers to be in control. But! Thats not what has actually happened.

Cumulative Volume Delta DAX Trade - Step 1 - chart of range in the DAX over multiple days
Cumulative Volume Delta DAX Trade – Step 1

As we are breaking down, we can see our cumulative delta keep rising. The rotations have deeper pullbacks, not really a sign of the strong initiative. Ranges are not holding to the tick after the break, they keep trying to expand back to the previous range. Higher lows, are being formed after the low has been made.

Cumulative Volume Delta DAX Trade - Step 2 - false break to the downside with a squeeze to the upside
Cumulative Volume Delta DAX Trade – Step 2

As the descending wedge is being formed, higher lows placed in and rising cumulative volume delta suggest that there is an opportunity for a squeeze again to the upside. A double squeezed range, great :).

Trade Management

You have basically two ways how you can play this. Either for a quick scalp once the higher lower has been confirmed or on the break of the wedge playing for a full reversal. First target would be the previous high of the interim 1minute range, second would be the opposite of the range where we initially falsed break to the upside. Stop below the low of the range after we broke the wedge.

Cumulative Volume Delta EURO Trade

This trade is the other variation on the Cumulative Volume Delta but opposite. Thats why it is so important to confirm Delta by price action and orderflow, not just Delta itself.

In this case, we are looking at EURO, where sellers are passively absorbing large selling. Big buyers absorbing the selling pressure and price not moving down. Again, sign that we might be heading for a breakout out of the range. And so we did. Although it was only for a scalp, absorption possibly gave conviction to those that played for a breakout of the other side.

Cumulative Volume Delta EURO trade - cumulative delta absorption while Euro is in the range eventually leads to the break to the upside
Cumulative Volume Delta EURO trade

What is the lesson from this last trade in EURO? Think about participants, someone big had a business to do, he did not have to hide through iceberg and simply absorbed passively the selling pressure. Then comes the break out of the range. Knowing the Cumulative Delta Absorption, would you be more confident to hit the long break out of the range? Let us know how would you tackle this trade in the comments under the video.

If you want to learn how Axia Traders trade other volume-derived patterns, visit the free workshop we are running at:

If you liked this type of content, you might check these videos as well:

If you like our content and would like to improve your game, definitely check one of our courses that teach you all the techniques presented by AXIA traders from a market profilefootprint, or order-flow. If you are someone who likes to trade the news, we have a great central bank course. And if you are really serious about your future trading career, consider taking AXIA’s 6-Week Intensive High-Performance Trading Course.

Thanks for reading and until next time, trade well.


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Written by Jaroslav Kohout

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