Negative Volume Index (NVI): Definition, Insights, and Calculation Methods
Explore the Negative Volume Index (NVI), a powerful technical analysis tool that combines price and volume data to reveal how price trends respond to days with declining trading volume, highlighting smart money movements.
Thomas J Catalano, a CFP and Registered Investment Adviser in South Carolina, founded his financial advisory firm in 2018. His extensive expertise spans investments, retirement planning, insurance, and comprehensive financial strategies.
What Is the Negative Volume Index (NVI)?
The Negative Volume Index (NVI) is a technical analysis indicator that tracks price changes specifically on days when trading volume decreases. By integrating price and volume data, NVI visually illustrates how price movements are influenced during low-volume trading days.
Key Insights
- NVI combines volume and price to highlight price behavior on days with reduced trading volume.
- Its trendlines are often considered effective for tracking mainstream and institutional investor activity, commonly referred to as smart money.
- Using NVI alongside the Positive Volume Index (PVI) provides a comprehensive view of how volume impacts price dynamics.
Understanding the Negative Volume Index
Developed by Paul Dysart in the 1930s and popularized in the 1970s through Norman Fosback's book "Stock Market Logic," the NVI complements the PVI to help investors analyze price trends relative to volume changes.
Both indexes are typically available on advanced charting platforms such as MetaStock and EquityFeedWorkstation, where they appear as trendlines beneath candlestick charts, similar to volume bar visualizations.
NVI trendlines are particularly valuable for identifying smart money flows, as they emphasize price changes on low-volume days often driven by institutional investors. Conversely, PVI trendlines reflect price movements on high-volume days, which can be influenced by both informed traders and market noise.
Investors often use NVI after significant price declines following high-volume trading sessions to gauge how institutional and mainstream investors are positioning themselves. For optimal analysis, combining NVI and PVI offers a balanced perspective on volume's role in price movements.
How to Calculate the Negative Volume Index
The NVI calculation depends on comparing today's trading volume to the previous day's volume. The index updates only on days when volume decreases; if today's volume exceeds the prior day's, the NVI remains unchanged.
When volume decreases, the NVI is calculated as follows:
NVIt = [(Pt − Pt−1) / Pt−1] × NVIt−1
Where:
- NVIt = Negative Volume Index at time t
- Pt = Price or index level at time t
Note: This content is for informational purposes only and does not constitute tax, investment, or financial advice. Investment decisions should consider individual objectives, risk tolerance, and financial circumstances. Investing involves risks, including potential loss of principal.
Discover the latest news and current events in Technical Analysis as of 28-09-2022. The article titled " Negative Volume Index (NVI): Definition, Insights, and Calculation Methods " provides you with the most relevant and reliable information in the Technical Analysis field. Each news piece is thoroughly analyzed to deliver valuable insights to our readers.
The information in " Negative Volume Index (NVI): Definition, Insights, and Calculation Methods " helps you make better-informed decisions within the Technical Analysis category. Our news articles are continuously updated and adhere to journalistic standards.