Negative Volume Index - NVI

DEFINITION of 'Negative Volume Index - NVI'

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.

BREAKING DOWN 'Negative Volume Index - NVI'

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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RELATED FAQS
  1. What are the best technical indicators to complement the Positive Volume Index (PVI)?

    Some of the best technical indicators to complement use of the positive volume index (PVI) are the negative volume index ... Read Full Answer >>
  2. What are the best technical indicators to complement the Negative Volume Index (NVI)?

    The negative volume index (NVI) was not created to be used as the basis for a stand-alone trading strategy. Therefore, it ... Read Full Answer >>
  3. What is a common strategy traders implement when using the Negative Volume Index ...

    A common strategy traders implement using the negative volume index (NVI) is to use it to help obtain a more optimal trade ... Read Full Answer >>
  4. What is the Negative Volume Index (NVI) formula and how is it calculated?

    There are two distinct versions of the Negative Volume Index, or NVI, along with one hybrid version that draws from both. ... Read Full Answer >>
  5. Why is the Negative Volume Index (NVI) important for traders and analysts?

    The Negative Volume Index (NVI), along with its cousin the Positive Volume Index (PVI), is one of the oldest technical indicators ... Read Full Answer >>
  6. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
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