Negative Volume Index or NVI

Negative Volume Index is considered as a good indicator to find bullish trends. It was introduced together with Positive Volume Index or PVI by Norman Fosback in his book Stock Market Logic. Negative volume index only consider the trading days which have lower trading volume than the previous days. It is calculated as

NVI (today) = NVI (yesterday) + [(Ct-Cy) / Cy]

Where Ct is today’s closing price and Cy is yesterdays closing price. If yesterday’s volume is lesser than today’s volume, then Zero is added to NVI (yesterday).

Negative volume index try to track what smart informed traders are doing. The assumption is that informed traders (as a percentage value) are trading on low volume days and uninformed and inexperienced traders are trading on high volume days. Thus one can better track the market movements if he/she only follow the informed traders.

Usually, negative volume index is represented as one-year moving average (255 days). Fosback claims that there will be 95% chance of a bullish trend if the current NVI is above its one year moving average and will be a 50% chance of bullish trend if the NVI is below one year moving average.

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