What does it mean that the AH moves up in the CDP indicator but the NL does not move?

The CDP indicator's rising AH with stable NL suggests bullish momentum and strong support, signaling potential trend continuation.

Jun 23, 2025 at 01:42 pm

Understanding the CDP Indicator

The CDP (Cambridge Directional Positioning) indicator is a technical analysis tool used by traders to identify potential support and resistance levels based on previous price action. It calculates key levels such as Pivot Point, Resistance 1 (R1), Resistance 2 (R2), Support 1 (S1), Support 2 (S2), and in some advanced versions, additional zones like AH (Above High) and NL (New Low). These levels help traders anticipate where price might reverse or continue its trend.

When analyzing the CDP indicator, it's crucial to understand what each level signifies. The AH typically represents a breakout level above the previous day’s high, indicating strong bullish momentum. Conversely, NL stands for New Low, which suggests a breakdown below the prior day’s low, signaling bearish pressure.

Interpreting the AH Movement Without Corresponding NL Change

If the AH moves up but the NL does not move, this implies that recent price action has shown strength on the upside but hasn't exhibited any significant weakness on the downside. In other words, buyers are pushing prices higher, forming new highs, while sellers haven’t been able to pull the price down enough to shift the NL level downward.

This situation can occur during a bullish phase where upward momentum is dominant. Traders should pay attention to whether the price is consistently closing near the daily high, reinforcing the idea of strong buying pressure. However, the absence of movement in the NL suggests that even during pullbacks or consolidations, the lows aren't being broken significantly.

Possible Market Conditions Behind This Scenario

• Bullish Trend Continuation: If the market is in an uptrend, the rising AH could indicate continuation rather than exhaustion. Buyers are still active, and the market isn't showing signs of panic selling.
• Sideways Correction with Strong Support: Sometimes, after a sharp rally, the market may enter a consolidation phase. During this time, the AH may rise slightly due to occasional pushes higher, while the NL remains unchanged because support levels are holding firm.
• Volume Disparity: A scenario where volume is increasing on up days but not decreasing significantly on down days could explain why AH rises but NL doesn’t fall. This imbalance often favors bulls.

In these conditions, traders should be cautious about entering short positions unless there’s a clear sign of reversal or breakdown.

How to Use This Information in Trading Decisions

When observing that AH is moving up while NL remains static, traders can consider several strategies depending on their risk appetite and trading style:

• Go Long on Breakouts: If the price breaks above the current AH, it could signal a new leg in the uptrend. Traders might look to enter long positions with tight stop losses just below the pivot point or S1.
• Watch for Rejections at AH: If the price reaches the AH level multiple times without breaking through decisively, it might suggest weakening momentum. This could be a sign to take profits or tighten stops.
• Monitor Volume and Candlestick Patterns: Strong candlesticks closing near the high and increasing volume can confirm the validity of the rising AH. Conversely, weak closes or declining volume may hint at an impending correction.
• Avoid Shorting Prematurely: Since the NL hasn’t moved, there’s no confirmation of bearish dominance. Short trades should only be considered if there’s a clear break below key support levels accompanied by increased selling pressure.

It's important to combine the CDP readings with other indicators like RSI, MACD, or volume oscillators to filter false signals and increase accuracy.

Common Misinterpretations and Pitfalls

Traders sometimes misinterpret the movement of AH without corresponding NL movement as a sign of overbought conditions or an imminent reversal. However, this is not always the case. Markets can remain overbought for extended periods during strong trends. Assuming a reversal solely based on elevated AH levels can lead to premature exits or wrong entries.

Another common mistake is ignoring the context of the overall trend. If the broader trend is bullish, isolated AH movements shouldn't be viewed as sell signals unless they coincide with bearish divergence or breakdowns from key supports.

Additionally, some traders fail to update or recalibrate the CDP settings according to the asset or time frame they're trading. Using the same parameters across different assets or chart intervals can distort the relevance of AH and NL levels.

Frequently Asked Questions

Q: Can I use the CDP indicator alone for trading decisions?

A: While the CDP indicator provides valuable reference points, it's most effective when combined with other tools such as trend lines, volume analysis, and momentum indicators. Relying solely on CDP levels increases the risk of false signals.

Q: How often should I recalculate the CDP levels?

A: CDP levels are usually calculated based on the previous day’s price data in intraday trading. For daily charts, they reset every 24 hours. On weekly charts, the calculation resets every Monday or first trading day of the week.

Q: Does the CDP work well in all market conditions?

A: The CDP performs best in trending or range-bound markets. In highly volatile or choppy conditions, the levels may get breached frequently without follow-through, making them less reliable.

Q: Are AH and NL levels standard across all platforms?

A: No, not all platforms include AH and NL in their default CDP indicator. Some versions of the indicator may have custom modifications, so traders should check the formula used by their specific platform or broker.