In a nutshell, volume delta is a method which pays attention to trading volumes and their changes on the price scale. It supposes that future price movements can be explained (and forecasted) by volume distribution in past. The name says that volume should be analysed in splitted into ask and bid volumes, and difference between them produces the delta.
You may find many sites out there which provide various tools for trading with volume delta charts. But one important thing about volumes is that real volumes - volumes measured in contracts - are available only for markets other than Forex.
Most traders assumes that tick volumes are not applicable for trading. Is this indeed so? I don't think the answer is exactly "yes" or "no".
It's obvious that tick volumes are highly correlated with real volumes. On the one hand, it's true that a big real volume may move price significantly in a tick, and it will be counted as a single tick, which looks unreliable. On the other hand, the Forex market is the largest market in the world, and according to the Law of large numbers, average price change in a tick should tend to a mean value, at least during a specific period of time when trading conditions are similar (such as European session, for example). In other words, any unusual concentration of real volume will in effect produce conforming number of price fluctuations which will generate unusual tick volume as well.
That being said, we can deduce that tick volume analysis may help in Forex trading. So the question is in proper implementation of a suitable tool. And here it is - VolumeDelta indicator.
It calculates tick volumes for buys and sells separately, and their delta, on every bar. Also it displays a distribution of volumes by price clusters (cells) within a specified bar. Cumulative delta, as a moving average of volume deltas for specified number of bars, is shown as well.
First, bars where price movement contradicts volume delta direction may foreshow a reversal.
There are even more signals based on cumulative delta. For example, the moments, when cumulative delta crosses zero line, can be treated as signals to buy (if crossed up) or to sell (if crossed down). When cumulative delta reaches previous high or low, one can trade in the opposite direction - buy from a minimum and sell from a maximum.
The best timeframes to use while trading by volume delta are M5-M15.
