Use the CVD indicator along with OI to find altcoins with explosive potential

Many traders dream of early identification of altcoins that will explode in price before the market recognizes it. However, to do this, you need to understand the on-chain analysis tools. This article introduces a method combining the CVD (Cumulative Delta Volume) indicator with Open Interest to discover cryptocurrencies with potential for future surges. This approach is based on actual trading activity data, not predictions or rumors.

What are CVD and OI?

To understand how to combine these two indicators, you first need to grasp each concept. OI (Open Interest) refers to the number of open contracts at a specific time. When OI increases, it indicates new capital flowing into the market, with traders opening more positions. Conversely, when OI decreases, capital is leaving the market, meaning positions are being closed.

CVD (Cumulative Delta Volume) is an indicator showing the accumulated difference between buying and selling volume. Unlike other indicators, CVD does not calculate based on price but on actual volume data in each trading direction. In trending markets, the CVD chart will move upward (strong uptrend) or downward (strong downtrend). When the market lacks a clear direction, CVD will oscillate around zero, indicating a balance between buyers and sellers.

Four scenarios combining OI and CVD

The real power of this method lies in combining the two indicators. Specifically, when OI and CVD fluctuate, they create four different situations, each with its own significance:

Scenario 1 - OI increases, CVD increases: This indicates strong buying activity. Buying pressure spikes, signaling that prices may soon rise. This is the most positive signal.

Scenario 2 - OI increases, CVD decreases: Sellers are opening large positions. Although OI rises, decreasing CVD suggests selling pressure dominates, and the market may face downward pressure.

Scenario 3 - OI decreases, CVD decreases: Long positions are being liquidated. Buyers are retreating, and prices are likely to fall; it’s not an ideal time to enter.

Scenario 4 - OI decreases, CVD increases: Short positions are closing. Sellers are surrendering, and buying power is regaining control. This is also a positive signal to consider buying.

Note that these indicators work best on altcoins with good liquidity and during volatile markets. For coins with low liquidity, these indicators have limited reference value.

Practical guide using Velo Data

To apply this method, you can use Velo Data or similar analysis platforms. The process involves three main steps:

Step 1 - Select the list of coins you’re interested in: Go to the Marketplace section and choose different categories such as Large Caps, Mid Caps, or Small Caps. If you’re looking for highly volatile coins with quick growth potential, select Small Caps and set a shorter timeframe like 1 hour or 4 hours for closer monitoring.

Step 2 - Observe the OI change chart: On this chart, you’ll see OI divided into positive (indicating increasing buying strength) and negative (indicating increasing selling strength). When OI remains continuously positive, it shows buying power is strengthening, and the market may continue its upward trend. Filter for tokens with positive OI for further analysis.

Step 3 - Check normalized CVD relative to OI: This is the most critical step. The normalized CVD chart allows you to see who controls the market—buyers or sellers. If the normalized CVD is rising sharply, buying pressure dominates and may push prices higher. If it’s negative but starting to turn upward, it could be an early buy signal.

Applying CVD in practical analysis

Let’s consider a specific example. Suppose you’re tracking the token ARPA and notice its OI is steadily increasing. At the same time, CVD begins to turn upward. Based on scenario 1, you might hypothesize that in the short term, ARPA’s price could slightly increase as buying momentum grows.

However, you should note that CVD is still below zero, meaning that although buying pressure is recovering, selling pressure still dominates. Therefore, the next rally might not last long unless buying strength continues to surpass selling. If buyers keep accumulating, the upward trend will become more sustainable.

Similarly, for token RLC, when you see OI increasing but CVD decreasing (scenario 2), you should be cautious as selling pressure is dominant. This is not an ideal time to enter the market.

Important trading notes

CVD and OI are only references based on past data and cannot precisely predict future movements. If you use this method for short-term trading, always set clear stop-loss levels and know when to take profits. Markets can change suddenly and unexpectedly.

To improve accuracy, combine CVD with other indicators like EMA or additional analysis tools. Using multiple perspectives helps confirm signals more robustly and reduces the risk of making wrong decisions.

Finally, remember that cryptocurrency trading is highly risky. Trade only with funds you can afford to lose, enhance your risk management awareness, and comply with the legal regulations of your country. Consider this article as a reference to better understand analysis tools, not as investment advice.