Positive Volume Index - PVI

DEFINITION of 'Positive Volume Index - PVI'

An indicator used in technical analysis that is based on days where trading volume has significantly increased from the previous day. The Positive Volume Index (PVI) assumes that uninformed investors dominate the action on days with substantial trading volume, while the "smart money" - consisting of institutions, funds and professional traders - is more active on relatively quiet days with below-average trading volume.

As the PVI only takes into consideration days when trading volume is higher compared with the previous period, if the PVI is up, it implies that price is appreciating on rising volume, while a lower PVI implies that price is declining on rising volume. Technicians believe the PVI is better at identifying bear markets than bull markets. PVI can be calculated on a daily or weekly basis.

BREAKING DOWN 'Positive Volume Index - PVI'

The PVI and the Negative Volume Index (NVI) are together known as price accumulation volume indicators. They were first developed in the 1930s by Paul L. Dysart, who used market breadth indicators such as the advance-decline line to generate the PVI and NVI. The indicators gained popularity following their inclusion in a 1976 book titled "Stock Market Logic" by Norman Fosback, who expanded their application to individual securities.

Fosback's research, which encompassed the period from 1941 to 1975, suggested that when the PVI is trending above its one-year average, the probability of the market being in a bullish phase is 79%. When the PVI is trending below its one-year average, the probability of a bear market is 67%.

Calculation of the PVI depends on how current volume compares with the previous day's trading volume. If current volume is greater than the previous day's volume, PVI = Previous PVI + {[(Today's Closing Price-Yesterday's Closing Price)/Yesterday's Closing Price)] x Previous PVI}. If current volume is lower than the previous day's volume, PVI is unchanged.

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