Most of the session, CVD and price move together: price up, CVD up; price down, CVD down. That is convergence, the normal state, no special signal.
The signal starts where CVD and price separate. Rowers pull one way, the boat goes another. But the word "divergence" hides three different situations. Confusing them means losing money on the very signal that was supposed to help.
Absorption: effort without result
ES, 5-minute chart. First push up: price reaches 5525.00 and CVD reaches +400. Pullback. Second push: price reaches only 5524.75, lower than the previous high, while CVD rises to +520, higher than the previous CVD peak.
More effort, less result. Buyers spent more aggression, but price could not break the previous high. Who is taking all that energy? A passive participant: iceberg, large limit order, algorithm. Invisible to CVD, visible in price.
Absorption divergence: CVD breaks its extreme, price does not. Effort increases, result decreases. Aggressors are being absorbed.
Lack of participation: breakout without interest
Mirror image: price breaks the previous extreme, but CVD does not. The boat drifted through the level, but the rowers barely moved.
ES breaks the session low by two ticks. On the chart it looks dramatic: new low, stops triggered. But CVD barely moved and did not reach the previous low. The breakout candle delta is only -3%, balanced, not initiative. This is not strong selling; it is a thin market, a few stops, inertia.
Stop run: aggression and absorption at the same time
The hardest case. Price and CVD both break the extreme, so it looks like convergence. But inside the breakout candle, stops can hit a wall of passive liquidity.
Price breaks 5500.00. Stops fire, sell market orders hit the bids, delta is -12%, CVD drops below the previous low. Externally: valid breakout. Inside the footprint: anomalous volume at the breakout level with delta near zero. Aggression met absorption.
Decision tree
New extreme on price or CVD? Ask three questions.
CVD breaks and price does not? Absorption. Effort without result.
Price breaks and CVD does not? Lack of participation. Breakout by inertia; check delta percent, often below 5%.
Both break? Possible convergence, but check footprint: anomalous volume with near-zero delta can reveal a stop run.
Divergence is not an entry trigger. It is a reason to investigate. Entry comes after footprint confirms that absorption ended or initiative appeared in the opposite direction.
- Convergence is normal: CVD and price move together
- Absorption: CVD breaks an extreme, price does not; effort without result
- Lack of participation: price breaks, CVD does not; breakout by inertia
- Stop run: both break, but footprint shows absorption inside the breakout candle