Positive Volume Index



The Positive Volume Index (PVI) is an indicator that uses trading volume (total number of transactions in shares or contracts) as a way of forecasting trend activity.  Some days see trading activity where volume shows a significant increase (or decrease) from the previous trading session and these changes can give investors an indication of where the “smart” money is going and when the “herd” is finally catching up.

Positive Volume (shown in the PVI) occurs when volume is greater than what was seen during the previous day.  In contrast, the Negative Volume Index (NVI) tracks data showing a decrease in volume when compared to transactions seen during the previous session.  This indicator is essentially a way of monitoring market behavior through total trading activity in a given asset (total volume of trades) and this allows investors to spot potential turning points as trends start to become over-extended.

Essential Assumptions

As trading volume increases, we can begin to assume that inexperienced traders are starting to enter into the market. At this stage, rumors have circulated, newspaper headlines have been written, and the majority of the market participants start to enter into positions to catch the latest move. The problem with this mindset is that prices can only go up (or down) for a finite amount of time. Once the majority of market participants have entered into position, there is no one left to buy (or sell) the asset. This occurrence is one of the best indications that a trend is on the verge of a reversal and one of the easiest ways to spot this phenomenon is by using the PVI.

The PVI was created in 1936 by Paul Dystart, who based the indicator on the idea that the level of trading volume is the main driver in the momentum of stock prices. Dystart’s models were later built on by Norman Fosback in his book Stock Market Logic, which added a base index level for the cumulative count (100 is the most commonly used base) and arrived at the daily changes in percentages rather than a simple difference in closing values. Finally, the buy and sell signals are generated, according to Fosback, based on the indicator’s relationship to its longer term moving average.

Fosback’s models are the ones most commonly used in the trading community today as they are generally believed to more fully express the concept that as volume increases, unification is building in the trading community. Since the indicator looks to capitalize on the lack of sophistication seen in the majority of the marketplace, Fosback’s PVI will enable traders identify instances when this majority (traders who are late in forecasting the underlying momentum in an asset) are entering into positions.

This surge in volume is then interpreted as a red flag, as most of the market is now committed to a position. The lack of available participants (to push prices further) gives a contrarian signal that the trend is in danger of reversing. For this reason, the PVI is typically thought of as a contrarian indicator. (Some traders argue this point, however, as the PVI often moves in the same direction as the actual price activity.)

So, if the indicator can show investors when to exit a position (as the “herd” makes its way into the trend), the question then becomes: How to we spot acceptable entry points? To determine this, the PVI uses the opposite occurrence, the slower trading days (with limited trading volume) to identify the movement of “smart” money into your chosen asset (stocks, commodities, or currencies). This decline in trading activity shows us that the inexperienced majority is on the sidelines and the shrewd investors are starting to build new positions.


Trading Signals with the PVI

The most common technique for generating trade signals with the PVI is to combine it with a 255 period exponential moving average (EMA). When the index falls below the EMA, there is a 67% probability, according to Fosback, that bearish momentum is building and sell positions should be considered. The majority of available buyers have already entered the market and the “smart” money is now beginning to take profits on previously established long positions. This probability shifts to 21% when the PVI is above the EMA.

Conversely, when the PVI is trending above the EMA, Fosback suggests there is a 79% chance that markets are experiencing underlying momentum that is bullish. PVI trends falling below the MA suggest a 33% chance that a bull market is actually in place.


The calculations for both the PVI and NVI are generated using comparisons of volume levels from the current and previous sessions. Using 100 as a baseline for the PVI and NVI, we can see that if current volumes are larger than what was seen during the previous session:

PVI = Previous PVI Value + [((Current Closing Value – Previous Closing Value) / Previous Closing Value) * Previous PVI Value]
NVI = Previous NVI Value

Conversely, when the Current Volume Level is lower than the Previous Volume Level, the formula looks like this:

NVI = Previous NVI Value + [((Current Closing Value – Previous Closing Value) / Previous Closing Value) * Previous NVI Value]
PVI = Previous PVI Value

Finally, when Current Volume Value is equal to the Previous Volume Value, these are the main calculations:

PVI = Previous PVI Value
NVI = Previous NVI Value


All indicators are capable of producing buy and sell signals but the probability of success using these signals will improve when used with other indicators. In this case, the PVI and NVI used together can increase the strength of the buy or sell signal. If, for example, we are looking at the stock price for Google and we see the PVI and NVI cross above their moving averages, the buy signal that is created will have a higher probability of being accurate than if the move was seen in only one indicator.

The same logic, of course, would hold true if the PVI and NVI crossed below their moving averages, creating a sell signal. Fosback’s research of his indicator’s performance shows that Bull Market trend moves are easier to predict (based on changes in volume) but that bear markets can also be seen with a high degree of predictive probability when both indicators used in combination.


In summary, the PVI indicator can alert traders to potential turning points when it seems as though current trends will continue and the late majority enters the market. Historical research shows that these trends can change based on total transactional volume and when used in conjunction with the NVI, reliable buy (PVI and NVI above the moving averages) and sell signals (PVI and NVI below the moving averages) can be easily identified.