Order Flow: Seeing the Invisible

Every candlestick you see on a chart is a summary. A single green candle might represent thousands of individual trades, some aggressive buys that pushed price up, others passive sells that absorbed the buying pressure. All that action gets compressed into a simple open-high-low-close bar.

Order flow analysis lets you look inside that candle to see what actually happened.

What Is Order Flow?

Order flow refers to the buying and selling activity that creates price movement. At its core, it's about understanding who is aggressive (market orders) versus who is passive (limit orders), and how that balance shifts over time.

When you place a market buy order, you're being aggressive. You're willing to pay the current ask price to get filled immediately. When you place a limit sell order, you're being passive. You're waiting for price to come to you.

This distinction matters enormously for understanding market dynamics.

Cumulative Volume Delta (CVD)

CVD is the most important order flow metric for crypto traders. It measures the cumulative difference between buy volume and sell volume over time.

The calculation is simple: For each trade, determine if it was buyer-initiated or seller-initiated based on whether it executed at the ask (buy) or bid (sell). Then keep a running total.

CVD rising means buyers are being more aggressive than sellers. CVD falling means sellers are more aggressive. But here's where it gets interesting: what matters most is the relationship between CVD and price.

CVD Divergences: The Money Signal

The most powerful order flow signal is divergence between CVD and price.

Bearish Divergence: Price makes a higher high, but CVD makes a lower high. This means price rose even though sell pressure actually increased. Someone was absorbing the buying with large limit sells. The price advance is weakening from within.

Bullish Divergence: Price makes a lower low, but CVD makes a higher low. Price fell, but buying pressure actually increased. Large buyers were accumulating on the way down.

These divergences often precede reversals because they show that the trend is no longer supported by order flow. The price move is running on fumes.

Absorption: When Size Meets Price

Absorption happens when large limit orders "absorb" aggressive order flow without letting price move. Imagine price pushing up toward a resistance level where a whale has a massive sell limit order waiting. Buyers keep hammering the level with market orders, but price barely budges because all that buying gets absorbed by the whale's limit.

You can spot absorption by looking for high volume at a specific price level with minimal price movement. This often shows up as a wick on the candlestick with enormous volume in that wick's range.

Absorption is important because it reveals where big players are positioned. If they've set up a wall, they're defending a level for a reason.

Delta Spikes and Exhaustion

Sometimes you'll see a massive delta spike, an enormous imbalance of aggressive buying or selling all at once. These often mark exhaustion points.

Picture a short squeeze: price rockets up, bears panic and cover with market buy orders, creating a huge positive delta spike. But after the shorts are liquidated, who's left to buy? The exhaustion spike often marks the local top.

The same works in reverse. A capitulation event with massive selling delta can mark bottoms when all the weak hands have finally sold.

Practical Application

Order flow analysis works best at key levels. When price approaches major support or resistance, watch the CVD closely:

At resistance, is CVD confirming the move higher, or showing divergence? Is there absorption showing a big seller defending the level?

At support, is selling pressure actually decreasing (CVD flattening or rising) even as price drops? That's accumulation.

Don't use order flow in isolation. Combine it with the other metrics we've covered: open interest, funding rates, liquidation levels. When multiple signals align, your edge is strongest.

The Timeframe Question

Order flow data is most actionable on lower timeframes (1-minute to 15-minute) for execution. But aggregated over longer periods, it still provides valuable context about the balance of power between buyers and sellers.

For swing trading signals, you might look at hourly CVD trends while using 5-minute CVD for entry timing.

What We Use at TargetHit

We've tested dozens of order flow indicators for statistical edge. CVD and its moving average variant (CVD MA) have shown real predictive value in our backtests, particularly for detecting regime changes and exhaustion points.

The key insight from our research: raw CVD is noisy. CVD divergence from price, expressed as a z-score, is where the edge lives. When divergence hits extreme levels (2+ standard deviations from normal), the probability of mean reversion increases significantly.

Key Takeaways

Order flow reveals what's happening inside the candlestick. CVD measures the cumulative battle between aggressive buyers and sellers. Divergences between CVD and price often precede reversals. Absorption shows where big players are defending levels. Extreme delta spikes can signal exhaustion and turning points.

Next, we'll look at where to actually get this data, including both free options and premium sources worth the investment.