What is the 'Cumulative Volume Index - CVI'

The cumulative volume index, or CVI, is a momentum indicator that gauges the movement of funds into and out of the entire stock market by adding the difference between advancing and declining stocks to a running total.

BREAKING DOWN 'Cumulative Volume Index - CVI'

The cumulative volume index is a breadth indicator that shows the direction of a market or index, such as the New York Stock Exchange or S&P 500 index. While its name makes it sound similar to the On-Balance Volume indicator, the difference is that CVI only looks at the number of securities rather than looking at their volume, similar to the Advance/Decline Index.

The cumulative volume index can be calculated as follows:

Cumulative Volume Index = Prior Period's CVI + (# of Advancing Stocks - # of Declining Stocks)

When reading the CVI, it's important to note that the actual number doesn't matter since it's not normalized (it's just a running total). Traders and investors should instead look at the CVI's trend over time relative to the index's price to interpret its meaning.

Many traders and investors also use CVI in conjunction with other forms of technical analysis, such as chart patterns or technical indicators, rather than using it as a standalone indicator. By doing so, they increase the odds of a successful trade by looking for confirmation of trends and reversals.

Using the Cumulative Volume Index

The cumulative volume index is used to determine whether capital is moving in or out of an index. If the CVI is trending lower, traders might assume that a trend is losing momentum and a reversal could be around the corner. If the CVI is trending higher, traders might assume that a trend is gaining momentum and it might be time to trade alongside the trend.

At the same time, traders may also look for divergences or convergences between the price and CVI trend lines. Highs and lows made in the price that aren't reflected in the CVI readings may be a sign of a weakening trend and upcoming correction

Cumulative Volume Index Example

The following chart shows an example of a cumulative volume index applied to the SPDR S&P 500 ETF (NYSE ARCA: SPY).

Cumulative Volume Index Chart Example

In the chart above, you can see that the CVI increases between December and February before moving sharply lower as the market sold off. The CVI then trended sideways in February and April before slowly trending higher in April through June.

Chart courtesy of TradingView.com.

RELATED TERMS
  1. Cumulative Return

    Cumulative return involves the total change in price of an investment ...
  2. Cumulative Dividend

    A cumulative dividend is a sum that companies must remit to preferred ...
  3. Net Volume

    Net volume is a technical indicator that's calculated by subtracting ...
  4. Low Volume Pullback

    A low volume pullback is a technical correction toward an area ...
  5. Volume Analysis

    Volume analysis is the examination of the number of shares or ...
  6. Accumulation/Distribution

    An indicator that tracks the relationship between volume and ...
Related Articles
  1. Trading

    Essential Strategies for Trading Volume

    Looking to trade using volume? Have a look at these essential tips.
  2. Trading

    How to Use Volume to Improve Your Trading

    Volume is a simple yet powerful way for traders and investors and traders to increase profits and minimize risks.
  3. Trading

    Confirming Price Movements With Volume Oscillators

    Use this indicator to validate a change in price direction and moving averages.
  4. Investing

    Fidelity Magellan Fund Performance Case Study (FMAGX)

    Discover the seasonal performance trends of the Fidelity Magellan Fund, and learn which periods are the best and worst times for investment.
  5. Trading

    A Guide To Finding The Most Actively Traded Stocks

    Knowing the trading volume of a stock helps traders understand price movements and forecast future movements.
  6. Investing

    Using Open Interest to Find Bull/Bear Signals

    Volume should inform your use of this indicator in confirming trends and reversals.
  7. Trading

    Top 7 Technical Analysis Tools

    Technical indicators determine the direction of an asset’s momentum and whether that direction will continue. Here are seven used most.
RELATED FAQS
  1. Is it Possible to Invest in an Index?

    While you cannot buy indexes, which are just benchmarks, we'll show you three ways for you to mirror their performance. Read Answer >>
  2. How can I calculate a company's forward p/e in Excel?

    Discover why trading volume is higher when the price of a security changes. Supply and demand is the mechanism through which ... Read Answer >>
Trading Center