131 Negative volume index (NVI)

The premise of this index is that smart-money trades during relatively quiet periods of decreasing volume, while “non-experts” trade when volume is rising. By checking trading during periods of declining volume, this index claims to measure the mindset of the smart money professionals.

Negative Volume Index simply calculates the difference in price between the current and prior period, only when current volume is smaller than the prior volume.

The NVI gives buying signals when the price is increasing but the volume is decreasing. Supposedly, this indicates smart-money is buying and is time to buy.

NVI can also be combined with an EMA, to indicate:

  1. Reversals, when when NVI crossovers the signal line (e.g., a 255-period moving average).

  2. Bull trends, when the NVI is above the 255-period moving average, and

  3. Bear trends, when NVI is below the 255-period moving average.

NVI

Figure 13.19: NVI