Community Forex Questions
What is a negative volume index (NVI)?
The Negative Volume Index (NVI) is a technical analysis indicator that helps investors and traders assess the strength and direction of a stock or market index based on volume data. The NVI was developed by Paul Dysart in the 1930s and focuses on the relationship between volume and price movement.
The NVI calculates a cumulative index by assigning positive or negative values to daily volume changes. When volume decreases from the previous day, it is considered "negative volume," and the NVI value is adjusted downward. Conversely, when volume increases, it is considered "positive volume," and the NVI value remains unchanged. The logic behind this is that during periods of low volume, smart money tends to enter or exit the market, which can impact price movement.
The significance of the NVI lies in its ability to identify periods of accumulation or distribution in a stock or market. If the NVI is rising, it suggests that volume is higher on up days, indicating positive investor sentiment and potential accumulation. Conversely, if the NVI is falling, it implies that volume is higher on down days, signaling negative investor sentiment and potential distribution.
Traders and investors can use the NVI to confirm price trends, identify potential reversals, and gain insights into the underlying strength or weakness of a stock or market index. However, it is important to use the NVI in conjunction with other technical indicators and fundamental analysis for a comprehensive assessment of the market.
The NVI calculates a cumulative index by assigning positive or negative values to daily volume changes. When volume decreases from the previous day, it is considered "negative volume," and the NVI value is adjusted downward. Conversely, when volume increases, it is considered "positive volume," and the NVI value remains unchanged. The logic behind this is that during periods of low volume, smart money tends to enter or exit the market, which can impact price movement.
The significance of the NVI lies in its ability to identify periods of accumulation or distribution in a stock or market. If the NVI is rising, it suggests that volume is higher on up days, indicating positive investor sentiment and potential accumulation. Conversely, if the NVI is falling, it implies that volume is higher on down days, signaling negative investor sentiment and potential distribution.
Traders and investors can use the NVI to confirm price trends, identify potential reversals, and gain insights into the underlying strength or weakness of a stock or market index. However, it is important to use the NVI in conjunction with other technical indicators and fundamental analysis for a comprehensive assessment of the market.
The Negative Volume Index (NVI) is a technical analysis tool used to identify market trends when trading volume decreases. Developed by Paul Dysart in the 1930s, NVI assumes that smart money moves quietly, particularly on low-volume days. It focuses on days when trading volume is lower than the previous day. If prices rise on lower volume, NVI increases, indicating positive market sentiment from informed investors. Conversely, if prices fall, NVI decreases. Traders often use NVI in conjunction with the Positive Volume Index (PVI), which measures price changes on higher volume days. Together, they help traders distinguish between periods driven by uninformed trading activity and those influenced by more knowledgeable market participants.
Jun 09, 2023 16:06