What is the Positive Volume Index?

What is the Positive Volume Index?

The Positive Volume Index (PVI) is a technical indicator that tracks increases in trade volume for an index or security, as well as the changes in price on those days. Paul Dysart developed the original version of this indicator for market indexes using advance-decline numbers instead of prices. The Positive Volume Index was then redesigned by Norman Fosback for individual securities – the version commonly used today.

Positive Volume Index increases or decreases with the price change in the security, but only on days when trading volume increases from the day before. A positive volume index which crosses below its 1-year average is purportedly a sign with 67% accuracy that bear market conditions are coming. Positive volume increases may indicate overbought conditions but are also confirmation of increasing prices.

If prices decrease past the one-year high of the index, it means that trading has been increasing despite decreases in prices on those days, and the conditions may be overbought, partially because increased demand should theoretically increase prices at some point.

Dysart considered volume to be the most important market indicator, and many traders today would agree. Fosback noted that the uninformed majority of investors were likely to be active on the days when the volume was highest, and both analysts felt that paying close attention the Negative Volume Index – which shows the days or weeks that saw decreases in trading volume, then compares changes in price on those days – would better indicate what the smart money was doing.

The PVI and NVI can be used together to give better context to the market, but while both indicators can be effective on their own and together, no indicator is 100% accurate. Whipsaws can obscure true trends, and other irregularities may arise. That’s why savvy traders will look for additional signals to confirm – or force them to reconsider – potential trading decisions. Tickeron’s Artificial Intelligence, known as A.I.dvisor, gives traders powerful ways to evaluate trade ideas, analyze signals, and provide the key confirmation needed to make rational, emotionless, and effective trades.