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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RELATED FAQS
  1. What is a common strategy traders implement when using the Positive Volume Index ...

    Traders usually implement the positive volume index (PVI) in conjunction with the negative volume index (NVI) to help spot ... Read Full Answer >>
  2. 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 >>
  3. What is the Positive Volume Index (PVI) formula and how is it calculated?

    The Positive Volume Index, or PVI, is a technical indicator designed to provide a measure of significant trading volume increases ... Read Full Answer >>
  4. Why is the Positive Volume Index (PVI) important for traders and analysts?

    The positive volume index (PVI) is a technical indicator based on increases in day-to-day trading volume. Normally applied ... Read Full Answer >>
  5. 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 >>
  6. 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 >>
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