Want to understand when it's a real dump and when it's just a false alarm? Learning to read the CVD indicator is enough because it directly reflects what the funds are doing.

CVD, in simple terms, is a formula: the number of active buy orders minus the number of active sell orders. It looks simple, but in practice, there's a lot to learn. When CVD moves upward, it indicates genuine money entering the market; conversely, when CVD turns downward, it usually means big funds are quietly offloading.

However, there's a trap to avoid: the CVD of perpetual contracts and spot CVD are completely different. The CVD for perpetual contracts mainly reflects leverage traders' sentiment fluctuations, which can be easily manipulated to pump or short squeeze, with a lot of false signals. Spot CVD is more authentic because it represents real buying and selling activities, providing a more accurate picture of medium- and long-term fund intentions.

The most useful signal is divergence. When the price is rising but CVD is falling, this reverse signal often indicates a false breakout, making a sharp drop from high levels very likely. If during a price decline, CVD also stops falling, it suggests the selling pressure is weakening, and the market is about to stabilize. Simply put, prices can deceive, but fund flow won't.