Positive Volume Index (PVI) and Negative Volume Index (NVI)
Positive Volume Index (PVI):
Positive volume index (PVI) is a volume based indicator which is based on days where trading volume has increased from the previous day. PVI indicator was developed by Paul Dysart in 1930s. This indicator helps traders to understand the activity of smart money.
PVI counts days when trading volume is higher than the previous period. This tells traders that smart money is active or not. PVI is more beneficial to identify the bear market. Here is an example in the daily chart of EUR/USD given below.
Negative Volume Index (NVI):
Negative volume index is also a volume based indicator that can give ideas about the activities of smart money. The structure of this indicator is just opposite to the PVI indicator.
NVI measures the price change % when the trading volume declines. This indicator is used to identify the bullish market. Here is an example of NVI in the daily chart of EUR/USD.
PVI and NVI can be used individually and as a combination. PVI mostly used to detect divergences between price change % and volume. Inversely, NVI is useful to determine trend reversals with the help of divergence.
Increasing price with decreasing volume of NVI is a strong buy signal. Inversely, decreasing price with increasing volume indicates strong weakness.
The best method to use these two indicators is to combine them together. In this case, PVI and NVI generate crossover signals. However, PVI and NVI are used to analyze market condition.
Most of the traders use this indicator to understand the market condition and smart money activity. Generally, traders do not use these indicators for making a buy or sell decision.