Positive Volume Index (PVI)

What Is the Positive Volume Index (PVI)?

The positive volume index (PVI) is an indicator utilized in technical analysis that gives signals to price changes in light of positive increases in trading volume. The PVI helps in surveying trend strength and possibly affirming price reversals and can be calculated for famous market indexes as well as used to examine developments in individual securities.

The Formula for the Positive Volume Index (PVI)

In the event that the present volume is greater than the previous volume:
$\begin &\text = PPVI + \frac{(TCP - YCP)}\times PPVI \ &\textbf\ &PVI=\text\ &PPVI=\text\ &TCP=\text{today's closing price}\ &YCP=\text{yesterday's closing price}\ \end$
In the event that volume today is not exactly or equivalent to volume yesterday:
$PVI = \text$

The most effective method to Calculate the Positive Volume Index (PVI)

1. In the event that volume today is greater than volume yesterday, utilize the PVI formula.
2. Input price data for now and yesterday, along with the previous PVI calculation.
3. On the off chance that there is no previous PVI calculation, utilize the price calculation from today as the previous PVI too.
4. On the off chance that volume today isn't greater than volume yesterday, then, at that point, the PVI stays something very similar for that day.

Understanding the Positive Volume Index (PVI)

The PVI is ordinarily continued related to a negative volume index (NVI) calculation. Together they are known as price accumulation volume indicators.

The PVI and NVI were first developed during the 1930s by Paul Dysart utilizing market [breadth indicators](/breadthindicator, for example, the development decline line. The PVI and NVI indicators acquired ubiquity following their inclusion in a 1976 book named Stock Market Logic by Norman Fosback, who expanded their application to individual securities.

Fosback's research, which included the period from 1941 to 1975, suggested that when the PVI is below its one-year average, there is a 67% chance of a bear market. In the event that the PVI is over its one-year average, the chance of a bear market drops to 21%.

Generally, traders will watch both the PVI and NVI indicators to get a feeling of the market's trend in terms of volume. The PVI will be more unstable when volume is rising and the NVI will be more unpredictable when volume is decreasing.

Since the primary factor of the PVI is price, traders will see the PVI expanding when volume is high and prices are expanding. The PVI will diminish when volume is high however prices are decreasing. Subsequently, the PVI can be a signal for bullish and bearish trends.

Special Considerations

The overall conviction is that high-volume days are associated with the crowd. At the point when the PVI is over its one-year moving average (around 255 trading days), it shows that the crowd is hopeful, which assists fuel with additional evaluating increases. Assuming the PVI falls below the one-year average, that signals the crowd is turning skeptical, and a price decline is impending or is as of now in progress.

Traders will frequently plot a nine-period moving average (MA) of PVI and compare it to a 255-period MA of PVI. They will then, at that point, watch for the relationships as depicted previously. Crossovers signal potential trend changes in price. For instance, in the event that the PVI rises over the 255-period MA from below, that could signal a new uptrend is in progress. That uptrend is confirmed the same length as the PVI stays over the one-year average.

Keep in the brain the probabilities mentioned previously. The PVI signals are not 100% accurate. Generally, the PVI compared to a one-year MA affirms trends and inversions, yet it won't be right constantly.

A few traders favor the NVI over the PVI, or they use them together to assist with affirming one another. The NVI takes a gander at lower volume days, which are associated with professional trader activity, and not the crowd. Subsequently, the NVI shows what the "smart money" is doing.

The Positive Volume Index (PVI) versus On Balance Volume (OBV)

Positive volume is a price calculation in view of whether volume rose in the current session relative to the prior. On balance volume (OBV) is a running total of positive and negative volume in view of whether the price today was higher or lower than the price yesterday, separately.

At the end of the day, the two indicators are factoring in volume and price, yet do it in totally different ways. Due to their various calculations, the PVI and OBV will give different trade signals and information to traders.

Limitations of Using the Positive Volume Index (PVI)

The PVI is tracking the crowd, whose activity is commonly associated with higher volume days. The crowd normally loses money, or fairs less well than professional traders. In this way, the PVI is tracking the "not-smart money." For better quality signals, and for a better setting of what a specific market or stock is doing, the PVI is utilized related to the NVI.

In the historical tests, the PVI made a fair showing of highlighting the bull and bear markets in price. In spite of the fact that it isn't 100% accurate...nothing is.

The indicator can be prone to whipsaws, which is the point at which different hybrids happen in quick succession, making it hard to decide the true trend course founded on the indicator alone. The PVI is likewise prone to certain anomalies. For instance, it may persistently move lower, even assuming the price is rising forcefully.

Hence, it is suggested traders utilize the PVI along with price action analysis, other technical indicators, and fundamental analysis on the off chance that seeing longer-term trading opportunities.

Highlights

• The positive volume index (PVI) depends on price moves relying upon whether the current volume is higher than the previous period.
• At the point when the PVI is over the one-year average, it affirms a price rise. At the point when the PVI drops below the one-year average, it affirms a price drop.
• Traders watch the relationship of a nine-period PVI moving average (or other MA length) relative to the 255-period PVI moving average.
• The PVI is much of the time displayed as a moving average (to assist with streamlining its developments) and compared to a one-year average (255 days).
• On the off chance that volume doesn't increase starting with one period then onto the next, the PVI stays something similar.