What Is the Negative Volume Index (NVI)?
The negative volume index (NVI) is a technical indication line that integrates volume and price to graphically show how price movements are affected by down volume days.
- The negative volume index integrates volume and price to graphically show how price movements are affected by down volume days.
- The negative volume index trendlines can potentially be the best trendlines for following mainstream, smart money movements typically characterized by institutional investors.
- NVI can be used in conjunction with the positive volume index (PVI) to see how price is being influenced by volume.
Understanding Negative Volume Index (NVI)
The negative volume index (NVI) can be used with the positive volume index (PVI). Both indexes were first developed by Paul Dysart in the 1930s and gained popularity in the 1970s after being spotlighted in Norman Fosback’s book entitled "Stock Market Logic."
The positive and negative volume indexes are trendlines that can help an investor follow how a security’s price is changing with the effects of volume. PVI and NVI trendlines are typically available through advanced technical charting software programs like MetaStock and EquityFeedWorkstation. Trendlines are usually added below a candlestick pattern similar to the visualization of volume bar charts.
Negative volume index trendlines can potentially be the best trendlines for following mainstream, smart money movements typically characterized by institutional investors. Positive volume index trendlines are usually more broadly associated with high volume market trending effects, which are known to be more heavily influenced by both smart money and noise traders.
NVI can be useful after a price comes down from high-volume trading. Low volume days can show how institutional money and mainstream investors are trading a security. Generally, it is best to follow both the NVI and PVI together, as overall they represent how price is being influenced by volume.
Calculation of the NVI depends on how volume for a single day compares with the previous day’s trading volume.
NVI will only change when the volume has decreased from one day to the next. Thus, if the current volume is higher, there is no change. If the volume is lower than the previous day then NVI is calculated using the following equation:
NVIt=Pt−1(Pt−Pt−1)×NVIt−1where:NVIt=Negative volume index at time tPt=Price or the index level at time t
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