The volume price trend (VPT) indicator adds or subtracts multiples of a percentage change in present stock volume and share price in accordance with their respective upward or downward movement.
The VPT is a technical momentum indicator that is utilized by investors and analysts to identify the parity between the supply and demand of a stock. The percentage of change in the trend of share price is indicative of relative supply or demand of a particular stock and volume is indicative of the strength of buying or selling momentum.
The VPT indicator uses its combination of percentage changes in price and volume to confirm the strength of trend in price or to indicate momentum divergence as a warning signal of a potential market reversal. The VPT is different from other price-volume indicators, because it uses percentage of price change as a factor of formulation instead of only adding or deducting volume based on the state of a stock's current price compared to the price the previous day.
The Volume Price Trend Indicator Formula
On days when stock price goes up, multiply volume by the percentage price increase between the today's close and the previous day's close and then add the result to the previous day's PVT value.
On days when a stock's price declines, multiply volume by the percentage price decrease between today's close and the previous day's close and then add the result to the previous day's PVT value.
Volume Price Trend Indicator Trading Signals
Possible trading signals provided by the VPT indicator include the following:
• Upward price trend is confirmed by an increasing VPT and increasing price.
• Downward price trend is confirmed by a decreasing VPT and decreasing price.
• Upward price momentum is interpreted as waning and bearish divergence is indicated when unchanged or falling VPT values occur with rising prices.
• Selling momentum is interpreted as weakening and bullish divergence is indicated when unchanged or rising VPT values occur with falling prices.