Using Crypto Order Book Heatmaps and Cumulative Volume Delta
Summary
This article explains how crypto order book heatmaps display resting limit orders across price and time, and how traders can use them to inspect apparent supply, demand, and liquidity. It describes combining books from centralized exchanges and comparing individual venues, while noting that differences in liquidity and available depth affect interpretation. Resting orders may also reflect market-making or hedging, so visible size does not necessarily represent directional conviction.
The article then distinguishes executed trade flow from resting orders and introduces cumulative volume delta (CVD), which accumulates the difference between buyer-initiated and seller-initiated volume. It compares nominal CVD with a normalized percentage and discusses dividing flow by order size as a rough way to distinguish smaller from larger participants. An ETH/USDT example over several days in 2023 interprets diverging retail and institutional flow measures, but the article cautions that normalized values hide magnitude and partial fills can inflate apparent CVD. These visual and flow measures offer context, not a complete forecast.
Key ideas
- Order book heatmaps show the price, timing, and relative size of resting orders.
- Apparent support or resistance from visible orders can be misleading because orders may serve hedging or market-making needs.
- Cumulative volume delta tracks the running difference between buy-side and sell-side traded volume.
- Normalized CVD helps compare relative flow but can obscure its absolute magnitude.
- Order-size categories can suggest participant types, though they do not identify them with certainty.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.