Cumulative Volume Index (CVI)

What Is the Cumulative Volume Index (CVI)?

The cumulative volume index, or CVI, is a momentum indicator that measures the movement of funds into and out of the whole stock market by computing the difference among progressing and declining stocks as a running total.

Understanding the Cumulative Volume Index (CVI)

The cumulative volume index is a breadth indicator that shows the heading of a market or index, for example, the New York Stock Exchange or S&P 500 index. While its name makes it sound like the On-Balance-Volume indicator, the difference is that CVI just ganders at the number of securities instead of taking a gander at their volume, like the Advance/Decline Index.

While perusing the CVI, it's important to note that the genuine number doesn't make any difference since it's not normalized (it's just a running total). Traders and investors ought to rather take a gander at the CVI's trend after some time relative to the index's price to decipher its importance.

Numerous traders and investors likewise use CVI related to different forms of [technical analysis](/technicalanalysis, for example, chart examples or technical indicators, as opposed to involving it as a standalone indicator. Thusly, they increase the chances of a fruitful trade by searching for confirmation of trends and reversals.

Instructions to Calculate the CVI

The cumulative volume index can be calculated as follows:
$\begin &\text = \text + (\text - \text)\ &\textbf\ &\text = \text{Prior Period's CVI} \ &\text = \text \ &\text \ &\text = \text \ &\text \ \end$

Utilizing the CVI

The cumulative volume index is utilized to decide if capital is moving in or out of a index. On the off chance that the CVI is trending lower, traders could expect that a trend is losing momentum and a reversal could be around the corner. Assuming that the CVI is trending higher, traders could expect that a trend is picking up speed and it very well may be an ideal opportunity to trade alongside the trend.

Simultaneously, traders may likewise search for divergences or convergences between the price and CVI trend lines. Ups and downs made in the price that aren't reflected in the CVI readings might be an indication of a debilitating trend and impending correction.

CVI Example

The accompanying chart shows an illustration of a cumulative volume index applied to the SPDR S&P 500 ETF (NYSE ARCA: SPY) from March 2020 to March 2021.

In the chart above, you can see that the CVI (portrayed by the blue line in the lower panel) diminishes into April 2020, however at that point consistently increases.

Features

• The CVI will add the propelling stocks less declining stocks to the previous period's CVI value.
• A momentum indicator accounts for advances/declines in the more extensive market.
• The cumulative volume index (CVI) sees whether net capital flows are moving in or out of the stock market.