What is the Trade Volume Index (TVI)
The Trade Volume Index (TVI) is a technical indicator that moves significantly in the direction of a price trend when substantial price changes and volume occur simultaneously. Unlike many technical indicators, the TVI is generally created using intraday price data.
Understanding Trade Volume Index (TVI)
The Trade Volume Index indicator is similar to the on-balance volume indicator. It may also be considered in comparison to other volume indicators such as volume weighted average price (VWAP), the Positive and Negative Volume Indexes, the Intraday Intensity Index and Chaiken’s Money Flow.
Calculating the TVI
The Trade Volume Index is a common indicator provided by technical charting software. Its calculation can vary across the industry with different programs potentially using different formulas. The most common and simplified approach is a calculation that is based on tick value at intraday price intervals. Traders may have the option to customize tick value when using this indicator.
There are several components involved in calculating TVI. First is the minimum tick value (MTV) which is typically set at 0.5. Next is the change in price calculated from the intraday price minus the last intraday price. The calculations of the TVI are then based around tick value as follows:
If the change in price is greater than the MTV then TVI = Last TVI + Volume (Accumulation)
If the change in price is less than -MTV then TVI = Last TVI – Volume (Distribution)
If the change in price is between MTV and -MTV then TVI is unchanged.
Using the TVI
Volume indicators overall help to support trading signals at various points in a security’s price chart. Generally, traders will discern high conviction trading signals when volume is supporting a price change. This can occur when high volume occurs in association with bullish trading or bearish trading signifying that there is common sentiment by most investors.
The Trade Volume Index follows the basic concepts around volume however it also associates price movements with volume. When the change in price is greater than the MTV the method refers to this as accumulation and adds volume. When the price has decreased and a negative change is less than the -MTV then the method refers to this as distribution and subtracts volume. Thus, the TVI moves higher when substantial price increases occur with high volume and lower when substantial price decreases occur with high volume.
Other Volume Indicators
The TVI is typically displayed in a window below the candlestick pattern. It can be used as an overlay to volume. It may also be charted in conjunction with other volume indicators such as the on-balance volume indicator, volume weighted average price (VWAP), the Positive and Negative Volume Indexes, the Intraday Intensity Index or Chaiken’s Money Flow.
For more on volume indicators see also: How to Use Volume to Improve Your Trading.