The Negative Volume Index (NVI) is a technical indicator used to identify trends in a market by analyzing the relationship between price movements and trading volume. Developed by Paul Dysart in the 1930s, the NVI tracks price changes during periods when trading volume decreases, aiming to identify strong trends that persist even in low-volume environments.
The NVI calculation involves comparing the closing price of a security today to its closing price yesterday, but only when the trading volume today is lower than the trading volume yesterday. If the price increases and volume decreases, the NVI increases. If the price decreases and volume decreases, the NVI decreases. If the price or volume does not change, the NVI remains the same.
Interpreting the NVI involves observing its direction and deviations from its average value. A rising NVI suggests that a downward trend is strengthening, while a falling NVI indicates that an upward trend is gaining momentum. Deviations from the average NVI can signal potential trend reversals or continuations.
The NVI is a valuable tool for technical analysts, providing insights into market sentiment and the strength of trends. It can be used to identify potential entry and exit points for trades, assess the likelihood of trend reversals, and make informed trading decisions.
Summary of the Negative Volume Index (NVI)
- A technical indicator that measures price movements during periods of decreasing trading volume
- Aims to identify strong trends that persist in low-volume environments
- Calculation involves comparing closing prices and trading volumes
- Rising NVI suggests a strengthening downtrend, falling NVI indicates a gaining momentum uptrend
- Deviations from average NVI can signal potential trend reversals or continuations
- A valuable tool for technical analysts to assess market sentiment and trend strength