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Positive Volume Index

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The Positive Volume Index was introduced by Norman Fosback and is often used in conjunction with Negative Volume Index to identify bull and bear markets.

Positive Volume Index (PVI) is calculated based on price movements on periods with increased volume. The high volume periods are consider to be driven by uninformed traders, and therefore PVI is intended to track the price movements which the 'uninformed' crowd is trading.

The market is considered to be bearish if the Positive Volume Index crosses below its 255-period moving average. A single input parameter is required which is the number of periods used to compute the signal line (moving average of PVI).

Usage:

The interpretation of the PVI is based on the assumption that on days with increasing trade volumes, the large-scale, crowd-following "uninformed" investors are in the market. On days with decreasing trade volumes, on the other hand, the "smart money" is quietly taking positions. In this way, the PVI is able to show the activity of the "not-so-smart-money".

The PVI is good at suggesting a bull market when it is above its one-year Moving Average, and still good in identifying a bear market when it is below its one-year Moving Average.

The Positive Volume Index is not currently applicable for Intraday charts and will never be applicable for Tick charts, due to the nature of the data.

The Positive Volume Index is typically compared to a 255-period moving average of its value.

  • When the index increases above this value, less informed traders (the crowd) have typically been buying , indicating the prices may continue to increase.
  • When the index increases below this value, uninformed traders have typically been selling, indicating a possible decrease.

Calculation

If today's volume is greater than yesterday's volume then:

PVI = Yesterday's PVI + (((Close - Yesterday's Close) / Yesterday's Close) + Yesterday's PVI)

If today's volume is less than or equal to yesterday's volume then:

PVI = Yesterday's PVI

Because rising prices are usually associated with rising volume, the PVI usually trends upward.

Parameters:

The default setting for the Positive Volume Index (exponential moving average) is 255 days.

  • Period (255) - the number of bars, or period.

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