Negative Volume Index (NVI) is to monitor price movements and reflects the time period in which trading volume decreases from a certain point in time. As one of the oldest indicators in the world of finance, NVI was developed by Paul Dysart in the 1930s.
Basics of the Negative Volume Index (NVI)
The principle behind the Negative Volume Index (NVI) is that an uptrend is one that continues even when trading volume decreases. The concept is that uninformative traders are responsible for excessive trading volume. During days with low trading volume, informed traders (or so-called smart money) become active.
Why Use Negative Volume Index (NVI)
NVI is an excellent indicator for identifying a smart money mindset. The term “Smart Money” refers to investments originating from large investors and is often associated with significant price movements in financial markets for various assets, stocks or cryptos.
Professional traders tend to trade when the smart money is inactive, keeping volatility levels and asset volumes low. This situation provides a good opportunity to accumulate assets.
Positive Volume Index (PVI) can be used simultaneously with Negative Volume Index (NVI). While NVI measures the decrease in volume from specific points, PVI does the opposite. An increase in the PVI value is generally considered a bearish signal, while a higher NVI value is considered a bullish signal.
Best Settings for Negative Volume Index (NVI)
The value used in the NVI indicator is set at 255, however, the value can be changed depending on the moving average you want to use when making buy/sell decisions.
NVI is calculated by comparing one day's trading volume with the previous day's trading volume. Please note that NVI will only show changes if volume has decreased from the previous day, which means if today's volume is higher than yesterday, NVI will not show significant changes.
The formula for calculating the Negative Volume Index (NVI) is as follows:
where:
NIV=Previous NIV
TCP=Today’s closing price
YCP=Yesterday’s closing price
Negative Volume Index (NVI) is a powerful trading signal, however, it is recommended to use other technical indicators, such as MACD, RSI, Aroon indicator, and Klinger oscillator, to make informed buying and selling decisions.
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DISCLAIMER: This article is informational in nature and is not an offer or solicitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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