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Positive Volume Index (PVI) |
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Wednesday, 12 September 2007 |
The Positive Volume Index distinguishes an increase in volume to the change in price. When volume increases from the previous day, the PVI adjusts by the percentage change in the security's price. It attempts to determine what the "Smart Money" is doing in contrast to the "Dumb Money".
To evaluate which category of Investor is more active in a particular market, look for the direction of the Positive Volume Index's slope.
If the slope is increasing, the market is dominated by the Uninformed Investors.
If the slope is decreasing, the market is dominated by the Smart Investors.
To calculate the PVI:
If Today's volume is greater than Yesterday's volume, then (Yesterday's PVI) + (Today's close - Yesterday's Close / Yesterday's Close) x (Yesterday's PVI).
If today's volume is less than or equal to Yesterday's volume then the PVI is Yesterday's PVI.
It is also said that if the PVI is above its 1 year moving average, than there is a 79% chance of a bullish trend. If it is below the 1 year, than there is a 33% chance of a bearish trend.
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