# Positive Volume Index (PVI): Overview, Examples, and Formulas

## What Is the Positive Volume Index (PVI)?

The positive volume index (PVI) is an indicator used in technical analysis that provides signals for price changes based on positive increases in trading volume. The PVI helps in assessing trend strength and potentially confirming price reversals and can be calculated for popular market indexes as well as used to analyze movements in individual securities.

### Key Takeaways

• The positive volume index (PVI) is based on price moves depending on whether the current volume is higher than the previous period.
• If volume doesn't increase from one period to the next, the PVI stays the same.
• The PVI is often shown as a moving average (to help smooth out its movements) and compared to a one-year average (255 days).
• Traders watch the relationship of a nine-period PVI moving average (or other MA length) relative to the 255-period PVI moving average.
• When the PVI is above the one-year average, it helps confirm a price rise. When the PVI drops below the one-year average, it helps confirm a price drop.

## The Formula for the Positive Volume Index (PVI)

If today’s volume is greater than yesterday’s volume, then:

\begin{aligned} &\text{PVI} = PPVI + \frac{(TCP - YCP)}{YCP}\times PPVI \\ &\textbf{where:}\\ &PVI=\text{positive volume index}\\ &PPVI=\text{previous positive volume index}\\ &TCP=\text{today's closing price}\\ &YCP=\text{yesterday's closing price}\\ \end{aligned}

If volume today is less than or equal to volume yesterday:

$PVI = \text{Previous PVI}$

### How to Calculate the Positive Volume Index (PVI)

1. If volume today is greater than volume yesterday, then use the PVI formula.
2. Input price data for today and yesterday, along with the previous PVI calculation.
3. If there is no previous PVI calculation, use the price calculation from today as the previous PVI as well.
4. If volume today is not greater than volume yesterday, then the PVI stays the same for that day.

## Understanding the Positive Volume Index (PVI)

The PVI is typically followed in conjunction with a negative volume index (NVI) calculation. Together they are known as price accumulation volume indicators.

The PVI and NVI were first developed in the 1930s by Paul Dysart using market breadth indicators such as the advance-decline line. The PVI and NVI 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 below its one-year average, there is a 67% chance of a bear market. If the PVI is above its one-year average, the chance of a bear market drops to 21%.

Generally, traders will watch both the PVI and NVI indicators to get a sense of the market’s trend in terms of volume. The PVI will be more volatile when volume is rising and the NVI will be more volatile when volume is decreasing.

Since the primary factor of the PVI is price, traders will see the PVI increasing when volume is high and prices are increasing. The PVI will decrease when volume is high but prices are decreasing. Therefore, the PVI can be a signal for bullish and bearish trends.

## Special Considerations

The general belief is that high-volume days are associated with the crowd. When the PVI is above its one-year moving average (about 255 trading days), it shows that the crowd is optimistic, which helps fuel further price increases. If the PVI falls below the one-year average, that signals the crowd is turning pessimistic, and a price decline is forthcoming or is already underway.

Traders will often plot a nine-period moving average (MA) of PVI and compare it to a 255-period MA of PVI. They will then watch for the relationships as described above. Crossovers signal potential trend changes in price. For example, if the PVI rises above the 255-period MA from below, that could signal a new uptrend is underway. That uptrend is confirmed as long as the PVI stays above the one-year average.

Keep in the mind the probabilities mentioned above. The PVI signals are not 100% accurate. Generally, the PVI compared to a one-year MA helps confirm trends and reversals, but it won't be correct all the time.

Some traders prefer the NVI over the PVI, or they use them together to help confirm each other. The NVI looks at lower volume days, which are associated with professional trader activity, and not the crowd. Therefore, the NVI shows what the "smart money" is doing.

## The Positive Volume Index (PVI) vs. On Balance Volume (OBV)

Positive volume is a price calculation based on whether volume rose in the current session relative to the prior. On balance volume (OBV) is a running total of positive and negative volume based on whether the price today was higher or lower than the price yesterday, respectively.

In other words, both indicators are factoring in volume and price, but do it in very different ways. Due to their different calculations, the PVI and OBV will provide different trade signals and information to traders.

## Limitations of Using the Positive Volume Index (PVI)

The PVI is tracking the crowd, whose activity is typically associated with higher volume days. The crowd typically loses money, or fairs less well than professional traders. Therefore, the PVI is tracking the "not-smart money." For better quality signals, and for a better context of what a particular market or stock is doing, the PVI is used in conjunction with the NVI.

In the historical tests, the PVI did a decent job of highlighting the bull and bear markets in price. Although it is not 100% accurate...nothing is.

The indicator can be prone to whipsaws, which is when multiple crossovers occur in quick succession, making it hard to determine the true trend direction based on the indicator alone. The PVI is also prone to some anomalies. For example, it may continually move lower, even if the price is rising aggressively.

For these reasons, it is recommended traders use the PVI along with price action analysis, other technical indicators, and fundamental analysis if looking at longer-term trading opportunities.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
1. Norman G. Fosback. "Stock Market Logic," Pages 120-124. Dearborn Financial Publishing, 1993.

2. Norman Fosback. "Stock Market Logic," Page 123. Dearborn Financial Publishing, 1993.