What Is a Negative Volume Index (NVI)?

The Negative Volume Index (NVI) tracks the price movements and highlights the time frames in which the trading volume decreased from a specific point in time. One of the oldest indicators in the financial world, NVI was invented by Paul Dysart in the 1930s.

The premise behind the Negative Volume Index (NVI) is that a rising trend is one that continues even when trading volume declines. The idea is that uninformative traders are to blame for the excessive trading volume. Also, during the days with low trading volume, the informed traders (also called smart money) are at play. 

Why Is Negative Volume Index (NVI) Used?

NVI is a great indicator to identify the mindset of smart money. Smart Money refers to the investment coming from big investors and is often associated with big price movements in the financial markets of any asset/stock/cryptocurrency.

Professional traders prefer to trade when the smart money isn't active which keeps the volatility level and the volume of the asset is low. This situation makes for a great opportunity to accumulate. 

What Is a Positive Volume Index (PVI)?

The Positive Volume Index (PVI) can be used in tandem with the Negative Volume Index (NVI). While NVI measures the decrease in volume from specific points, PVI does the exact opposite. Generally, the increase of PVI is seen as a bearish signal and greater values of NVI are seen as a bullish one.

A 255-period moving average is used to determine trend reversals. It indicates a bull market when the NVI is above the 255-period moving average. Bearish sentiment is shown by the NVI falling below the 255-period moving average. In such a case, it sends out a sell signal; however, when it goes above the 255-period moving average, it suggests a buy signal.

where:

• PNVI = Previous NVI
• TCP = Today’s closing price
• YCP = Yesterday’s closing price

The Negative Volume Index (NVI) is a powerful trading signal, however, it is recommended to use other technical indicators, like MACD, RSI, Aroon indicator, and Klinger oscillator, to make an informed buying and selling decision.