Perpetual CVD (Perp CVD)

• Perp CVD tracks the net buying and selling pressure in perpetual futures contracts. It shows whether more volume is going into buy orders (bullish pressure) or sell orders (bearish pressure) over time.
• How to interpret:
  • If Perp CVD is increasing, this signals more aggressive buying in the futures market.
  • If Perp CVD is decreasing, this suggests more aggressive selling in the futures market.

Spot CVD

• Spot CVD measures the net buying and selling pressure in the spot market. Like Perp CVD, it shows if more people are buying or selling in the underlying asset.
• How to interpret:
  • If Spot CVD is increasing, there’s more buying pressure on the underlying stock or asset.
  • If Spot CVD is decreasing, there’s more selling pressure in the spot market.

Comparing Perp CVD vs. Spot CVD

• When Perp CVD is rising faster than Spot CVD: This could indicate that speculators in the futures market are more bullish than spot market participants. Futures traders may be driving prices up, but without confirmation from the spot market, this rally may not be sustainable.
• When Spot CVD is rising but Perp CVD is falling: This could show that the underlying asset is being bought, but futures traders are bearish. If the spot market continues to rise, it could lead to a short squeeze as futures traders are forced to cover their positions.
• Both CVDs moving in the same direction: If both Spot and Perp CVDs are rising or falling together, it signals a strong directional move, as both futures and spot markets are aligned.

Divergences

• Bullish Divergence: If Spot CVD is rising while Perp CVD is falling, it can signal that the underlying asset is being accumulated while futures traders are overly bearish. This could lead to a price rally once the futures market catches up.
• Bearish Divergence: If Perp CVD is rising but Spot CVD is falling, this suggests that futures traders are bullish, but there’s no follow-through in the spot market. This can indicate a weak rally, where prices could reverse.

Practical Example

• Perp CVD rising + Spot CVD flat or falling: This indicates that futures traders are pushing prices up, but without the spot market confirming, there’s a risk of a sudden pullback if the move isn’t supported by actual buying of the underlying asset.
• Spot CVD rising + Perp CVD rising: Both markets are in agreement, which suggests a stronger, more sustainable trend in price movement.

Use Cases in Stock Trading

• Entry and Exit Signals: CVDs can be used as additional confirmation when identifying overbought or oversold conditions. For instance, if a stock is rising but Spot CVD is flat or falling, it may indicate that the move lacks strength.
• Monitoring Market Sentiment: Compare the behavior of spot traders (usually more long-term oriented) with that of perpetual futures traders (often more speculative) to gauge overall market sentiment and potential price movements.

By analyzing the interplay between Perp CVD and Spot CVD, you can gain deeper insights into where buying and selling pressure is concentrated and whether the price move is driven by speculators or by actual asset buyers