133 Positive Volume Index (pvi)
The Positive Volume Index is a cumulative indicator that uses volume change in an attempt to identify where smart money is active.
The PVI is typically followed in conjunction with a negative volume index (NVI) calculation. Together they are known as price accumulation volume indicators.
On days of increasing volume, you can expect prices to increase, and on days of decreasing volume, you can expect prices to decrease. This goes with the idea of the market being in-gear and out-of-gear. Both PVI and NVI work in similar fashions: Both are a running cumulative of values, which means you either keep adding or subtracting price rate of change each day to the previous days sum. In the case of PVI, if todays volume is less than yesterdays, dont add anything; if todays volume is greater, then add todays price rate of change. For NVI, add todays price rate of change only if todays volume is less than yesterday`s.
Figure 13.25: Positive Volume Index
PVI follows the craw, and the crowd typically loses money, or fairs less well than professional traders. Therefore, the PVI is tracking the “not-smart money.”
Figure 13.26: Positive Volume Index