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Price and Volume Trend PDF Print E-mail

Price and Volume Trend

The Price and Volume Trend (PVT) is a cumulative total of volume adjusted according to relative changes in closing prices. It is similar to On Balance Volume (OBV).

Overview

PVT is calculated by adding a percentage of the volume when prices close up and subtracting a percentage of volume when the prices close down. (OBV adds all volume when prices close higher and subtracts all volume when prices close lower.) The amount of volume added or subtracted to the PVT is relative to the amount that prices rose or fell compared to the previous day's close (see note on calculation below).

  • When the price changes by a small percentage, PVT adds only a small portion of volume to the indicator
  • When the price changes by a large percentage. PVT adds a large portion of volume to the indicator

Interpretation

  • When the PVT falls money is flowing out of this market (falling prices accompanied by increased volume).
  • When the PVT rises money is flowing into this market (prices and volume are increasing together).

PVT is a leading indicator for future price movements. Although interpretation of PVT is similar to the OBV and the Accumulation/Distribution indicators, PVT more accurately demonstrates the flow of money. PVT adds only a proportional amount of volume to the indicator, whereas OBV adds the same amount of volume not considering whether the market closes up a fraction of a point or triples in price.

  1. Rising PVT means new money, sometimes referred to as "smart money, " is flowing into the marketplace. The result will be that the present trend will continue. Accelerating PVT rise indicates that "the masses" are joining the new price trend.
  2. If the PVT then levels off, it is often an early warning that the trend is finishing.
  3. Declining PVT indicates that the smart money is liquidating.
  4. If the PVT moves sideways or falls while the price is rising, the increase in price is not confirmed and a market top or bottom may be indicated.

Signals

The main signal offered by the PVT indicator is divergence from price.

In the example charted above, bullish divergence was seen on two separate occasions -- with the PVT trending higher while prices trended lower -- followed by strong price increases in both cases.

Calculation

PVT is calculated by multiplying the day's volume by the percentage change from yesterday's close and adding this value to a cumulative total. For example, if a stock closed up 0.5% and volume was 10,000 shares, you would add 50 (i.e., 0.005 X 10,000 = 50) to the PVT. If the stock had closed down 0.5 %, you would subtract 50 from the PVT.

Further Information

Also see On-Balance Volume.