Negative Volume Index (NVI)

Description

The Negative Volume Index (NVI) is a cumulative indicator, developed by Paul Dysart in the 1930s, that uses the change in volume to decide when the smart money is active. The NVI assumes that smart money will produce moves in price that require less volume than the rest of the investment crowd.

NVI rises on days of positive price change on lower volume, NVI falls on days of negative price change on lower volume, and NVI is unchanged on days of higher volume no matter what the price action.

Chart 1: Negative Volume Index (NVI)

How this indicator works

Norman Fosback, of Stock Market Logic, compared NVI with its one-year (255bar) moving average. When NVI is above the moving average, he calculated that there is a 96% chance that a bull market is in progress; when NVI is below the average, there is a 53% chance of a bear market. As with all indicators, NVI should not be used on its own. Instead, chartists should use it in conjunction with other analysis techniques.

Chart 2: Negative Volume Index (NVI)

Calculation

If today's volume is less than yesterday's volume then:

Calculation 1: Negative Volume Index (NVI)

If today's volume is greater than or equal to yesterday's volume then:

Calculation 2: Negative Volume Index (NVI)

Because falling prices are usually associated with falling volume, the NVI usually trends downward.

Technical analysis focuses on market action — specifically, volume and price. Technical analysis is only one approach to analyzing stocks. When considering which stocks to buy or sell, you should use the approach that you're most comfortable with. As with all your investments, you must make your own determination as to whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation. Past performance is no guarantee of future results.

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