All About Positive Volume Index (PVI)

A solid understanding of stock markets is essential for a stockmarket investor. After you have learned the basics, it is time to start looking for long-term trading and investing opportunities by doing fundamental analysis and assessing technical indicators. You can use technical indicators such as the Negative Volume Index, Positive Volume Index (NVI), and price action analysis to help you assess market trends and reversals and determine the direction of securities and stocks. However, market indicators like the Positive Volume Index, as their name implies, are only signs and have limitations. Stock markets are subject to complex variables and you cannot guarantee returns no matter how strong the indicator.

What is Positive Volume Indice (PVI)?

What is Positive Volume Index? PVI can be used to analyze the market's price movements based on trading volumes. PVI is a measure of price movements, which takes into account whether the current trading volume exceeds that for the previous period. PVI is often calculated daily. You can also compare it to a Moving Average of 255 days. This is the average trading day in a given calendar year. It can also be used to calculate PVI on a weekly basis, monthly basis, quarterly, and half-yearly basis. The PVI will not change if the trading value stays the same over different time periods. PVI is often used in technical analysis together with NVI. When used together, the analysis can be called: price accumulation volume indicator. Let's take a look at the history of PVI before we get into the details.

History PVI Paul L Dysart created PVI and NVI by analysing daily trades made on the New York Stock Exchange.He collected an aggregate of data for a particular time period, firstly by considering the volume trading. He called it PVI if the trading volume was higher, while NVI is for lower volumes. It was the changes and declines of the trading volume that were key to understanding market movements. PVII and NVI were further accepted in stock markets when Norman Fosback, one of the most respected market forecasters in America, published his 1976 bestseller, 'Stock Market Logic'. Fosback expanded the scope of PVII and NVI by allowing them to examine individual securities.

Formula to Calculate Positive Volume Index: To calculate the PVI for one specific day, such as Thursday, October 15, 2020, you must take into consideration the trading volume on Thursday and Wednesday.

The following formula can be used if Thursday's PVI was higher than Wednesday's:

PVI = Wednesday’s PVI + (Thursday’s close-Wednesday’s close/Wednesday’s close)*Wednesday’s PVI.

The formula will work if Thursday's trading volume is equal or lower than Wednesday's.

PVI = Wednesday's PVI.

Understanding Positive Volume Index :

PVIis based upon the idea of analysing the herd/crowd or uninformed investor, also known as the not so-smart money. The NVI, on the other hand, focuses on select investments and informed investors or smart money. An increase in PVI indicates that the not so-smart money is more active. A decrease in PVI suggests that the herd (not-so smart-money) is exiting markets. You can compare NVI and PVI to identify potential trading opportunities. You can use Moving Averages to examine the differences between smart and not-so intelligent money to draw a conclusion about market trends and reversals.

If the PVI and NVI have decreased over a period of 120 days, it could indicate a bullish market. The reverse could indicate a bearish market, with a decrease in stock prices. A bullish market can have a negative PVI, while a bullish market will usually have a positive one.

- Understanding the relationship between different market phases, and PVI is important. Market experts say that market turmoil can lead to a decrease in the PVI, or not-so smart-money. Because the prices are falling, this is when the crowd will sell their stocks. In the event of a market meltup, when the stock market recovers primarily due to investor sentiment and not real growth in economic indicators, the PVI will rise.

The Positive Volume Index is generally associated with a bearish market. However, it does move in tandem with price direction. It is not a contrarian indicator, which would indicate against investor sentiment.

Conclusion:

PVI, which is an accumulative indicator, considers changes in trading volume to identify uninformed investors and not-so smart-money are active on stock exchanges. To find the best investment opportunities, it is often used in conjunction with NVI. Before making any investment decisions, it is important to consider more than just technical analysis such as the Positive Volume Index. You should also consider your investment goals, risk appetite, and financial situation. You should also choose a reliable and trustworthy financial partner who can offer you cutting-edge trading platforms that allow you to access multiple stock exchanges from one place. You should look for features like 2-in-1 Dematcum-Trading account and detailed reports from experts. Also, real-time stock updates.