Negative Volume Index [NVI]

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The Negative Volume Index function determines the trend in market prices when the volume is declining, theoretically when informed traders are trading. Parameters ------------------ Close         The closing price of the security for each given day. Volume      The number of shares of the security that were traded during each given day. Note that while this function is intended for use with these specific values, any values can be used for these parameters, including other price values and averaged prices. Indicator Value ------------------------ The Negative Volume Index is based on rhe theory that informed investors are trading on days of lower volume, while the uninformed crowd is participating on days of higher volume. Therefore, the index only includes changes in price when the volume is decreasing. These changes are added to the value of the index from the previous day. This is similar in logic to the Positive Volume Index, which tracks changes on higher volume days. However, where that indicator follows the less informed "crowd", this The Neagtive Volume Index follows the "smart money". This does not mean that they are opposing values, simply that they theoretically track different segments of the trading public. Since this is a cumulative indicator, the value at the beginning of the data series is zero and the value associated with each new day is added to the value of the previous day. Usage ----------- The Negative Volume Index is typically compared to a one-year (255-trading-day) moving average of its value. When the index increases above this value, informed investors have typically been buying this security, indicating the prices should continue to increase. When the index increases below this value, informed investors have typically been selling, indicating a possible decrease. Based on back-testing against broad-market indices, a bull market was in progress during an upward crossing 96% of the time and a bear market was in progress during a downward crossing 53% of the time. Therefore, this may primarily be useful as a bull market indicator. See the sample entry/exit systems for an example using the Negative Volume Index for long entry/exit timing. Source ------------ This indicator is based on information in "Stock Market Logic" by Norman G. Fosback.