The Positive Volume Index (PVI) is a stock market indicator focusing on days when trading volume increases from the previous day. It suggests that uninformed investors are trading, and it’s used to detect long-term bullish trends when the PVI moves upward.
Content:
- What Is the Positive Volume Index?
- Positive Volume Index Example
- Calculation Of The Positive Volume Index
- Positive Volume Index Strategy
- Positive Volume Index Vs Negative Volume Index
- PVI Full Form – Quick Summary
- Positive Volume Index – FAQs
What Is the Positive Volume Index?
The Positive Volume Index (PVI) is a technical analysis indicator that tracks price movements on days when trading volume is higher than the previous day. It operates on the theory that uninformed investors trade predominantly on high-volume days, impacting prices differently than informed traders.
The PVI starts with an arbitrary base value (usually 1000) and changes only on days when trading volume increases from the previous day. On these days, the PVI is adjusted in proportion to the percentage change in the stock’s price, reflecting how non-professional investors might affect the market.
In analysis, a rising PVI is often interpreted as bullish, indicating that prices are increasing on days with high trading volume. It is commonly used in conjunction with the Negative Volume Index (NVI), which tracks low-volume days. Together, they can provide insights into market trends influenced by different investor groups.
Positive Volume Index Example
An example of the Positive Volume Index (PVI) is when a stock’s trading volume increases compared to the previous day, and its price also rises. Suppose the PVI is at 1000, and the stock price increases by 5% on a higher volume day. The PVI would adjust to 1050.
This adjustment reflects the assumption that less-informed investors are more active on high-volume days, potentially driving the price up. The PVI captures these movements, providing a tool for understanding how casual investor activity might influence a stock’s performance on specific days.
In contrast, if the stock price falls on a high-volume day, the PVI would decrease, reflecting negative sentiment among uninformed investors. Over time, tracking the PVI trends helps in identifying long-term bullish or bearish trends in the market, offering insights for investment strategies focused on broader market movements.
Calculation Of The Positive Volume Index
The Positive Volume Index (PVI) is calculated on days when the trading volume increases from the previous day. Starting with an arbitrary number (often 1000), it changes based on the percentage price change of the stock or index on days with higher trading volume.
To calculate the PVI, if the volume today is greater than yesterday’s, the formula is PVI = Yesterday’s PVI + (Today’s Price Change % × Yesterday’s PVI). Here, the price change percentage is the difference in today’s price from yesterday’s, divided by yesterday’s price.
If today’s volume is less than or equal to yesterday’s, the PVI remains unchanged. Over time, the PVI can provide insights into market sentiment and trends, particularly regarding the behavior of less-informed investors who may be more active on high-volume days.
Positive Volume Index Strategy
The Positive Volume Index (PVI) strategy involves using the PVI as a tool to identify long-term bullish trends in the market. Traders observe the PVI for upward trends, which may indicate that uninformed investors are driving up prices, potentially signaling a broader bullish market sentiment.
In practice, when the PVI is trending upwards, especially in conjunction with a rising market, it suggests that less-informed, casual investors are participating actively, often during market uptrends. This can be a bullish signal. Investors might consider buying or holding onto their investments in such scenarios, anticipating continued market growth.
Conversely, a stable or declining PVI during a market upswing might indicate that the increase in stock prices is not supported by the buying enthusiasm of the general public. This could be a signal for caution. In this strategy, the PVI is often used alongside other indicators to confirm
trends and make informed trading decisions.
Positive Volume Index Vs Negative Volume Index
The main difference between the Positive Volume Index (PVI) and Negative Volume Index (NVI) is that the PVI focuses on days with increased trading volume, while the NVI tracks days when the trading volume is lower than the previous day, reflecting different investor behaviors.
| Aspect | Positive Volume Index (PVI) | Negative Volume Index (NVI) |
| Focus of Tracking | Monitors price movement on days with increased volume. | Monitors price movement on days with decreased volume. |
| Investor Behavior | Reflects the actions of less-informed, casual investors. | Indicates the activity of more informed, professional investors. |
| Market Sentiment | Used to identify long-term bullish trends. | Often used to spot bearish trends or market caution. |
| Volume Comparison | Adjusts on days when volume is higher than the previous day. | Changes on days when volume is lower than the previous day. |
| Usage in Analysis | Useful in a rising market with active public participation. | Valuable in understanding professional investors’ actions in quieter markets. |
PVI Full Form – Quick Summary
- The Positive Volume Index (PVI) tracks price movements on days with increased trading volume, based on the theory that less-informed investors are more active on these days, affecting prices differently from informed traders.
- The Positive Volume Index (PVI) tracks price changes on days when trading volume exceeds the previous day’s. Starting typically at 1000, it adjusts based on the day’s price percentage change but remains unchanged if the volume isn’t higher. PVI helps gauge market trends and sentiment influenced by casual investors.
- The PVI strategy uses the Positive Volume Index to spot long-term bullish market trends, with upward PVI trends suggesting less-informed investors are actively buying, indicating a potentially broader bullish sentiment in the market.
- The main difference between the Positive Volume Index (PVI) and Negative Volume Index (NVI) is that the PVI tracks price movements on days with increased trading volume, indicating casual investor activity, while the NVI focuses on days with decreased volume, reflecting the behavior of more informed investors.
Positive Volume Index – FAQs
The Positive Volume Index is a technical indicator that tracks stock price movements on days with higher trading volume, suggesting trends based on the activity of less-informed, casual investors in the market.
The formula for the Positive Volume Index (PVI) is: If today’s volume > yesterday’s volume, then PVI = Yesterday’s PVI + (Today’s price change % × Yesterday’s PVI). Otherwise, PVI remains unchanged from the previous day.
If the trading volume is negative, which isn’t possible in actual trading as volume represents the number of shares traded, the Positive Volume Index (PVI) remains unchanged. The PVI only adjusts on days with higher volume than the previous day.
To use the Volume Index, like PVI or NVI, track their trends alongside market movements. An increasing PVI indicates bullish trends, while a rising NVI suggests bearish sentiments. They’re used to gauge investor behavior and market sentiment.
There are no formal restrictions on using the Positive Volume Index (PVI), but its effectiveness may be limited in illiquid markets or for stocks with consistently low volumes. It’s best used alongside other indicators for a comprehensive analysis.
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