Negative Volume Index - NVI

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DEFINITION

A technical indicator that relies on changes in a security’s volume to identify when smart money is driving the current trend. The Negative Volume Index suggests that unsophisticated investors buy and sell primarily on high-volume days, while shrewd investors are more likely to trade on low-volume days. The concept was developed by Paul Dysart in the 1930s and later refined by Norman Fosback.

INVESTOPEDIA EXPLAINS

Often when volume drops, price drops. If a stock’s price increases despite a decrease in volume, technical analysts consider this a positive sign. They use the negative volume index to help identify bull and bear markets.

To determine the Negative Volume Index:

1. Use 1000 as the starting point for Cumulative NVI

2. Add the Percentage Price Change to Cumulative NVI when volume decreases (NVI remains unchanged when volume increases)

3. Create a 255-day exponential moving average

Followers of the NVI believe a bull market is likely when NVI is above its 255-day moving average and that a bear market is in store when the index drops below the moving average. Theorist Norman Fosback has acknowledged, however, that the NVI has historically been far more effective at predicting bull markets than downward trends.


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