Positive Volume Index or PVI

Positive Volume Index or PVI is a market trend indicator. It was introduced together with Negative Volume Index or NVI by Norman Fosback in his book Stock Market Logic. Unlike NVI which track smart money on low-volume days, positive volume index tracks the crowd on high-volume days. PVI only consider the trading days which have higher trading volume than previous days. The formula is,

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

Where Ct is today’s closing price and Cy is yesterday’s closing price. If yesterday’s trading volume is higher than today’s trading volume, then Zero is added to PVI (yesterday).

Positive volume index is based on the assumption that uninformed and unsophisticated traders are moving the market on high-volume days and informed traders are moving the market on low-volume days. Generally, PVI is represented as one year (255 days) moving average. Thus when current PVI is above its one year MA then the crowd is pushing prices up (bullish trend) and when current PVI is below its one year MA, then crowd is pulling prices down (bearish trend.)

With positive volume index crossing of one-year MA has significant importance. A bullish movement predicted 79% times when an upward crosses occur and bearish movement is predicted 67% times when downward crosses occur.

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