Price Volume Trend is a collection of Price Movements along with the volume of trading.
The formula to calculate PVT is as under:
[ [ (Close - Yesterday's close) / (Yesterday's close) ] * Volume ] +
In the above formula Price Volume Trend is determined by multiplying each day’s
volume by the Proportional change of price from its previous close and combining
all values to get a cumulative sum. In order to calculate PVT for a number of days,
use the following formula:
PVT = [ ( Ct - Ct-1 ) * Vt ] +
...... + [ ( Ct-n+2 - Ct-n+1 ) * Vt-n+1 ]
Ct = Today’s Closing Price,
Vt = Today’s Volume,
n = Predetermined Period. It can vary from '1' to '500'.
PVT is a very common indicator, used by traders to determine future price movements.
The Specifics of PVT and Accumulation/Distribution Indicators like Trade Volume
Index are same in nature. PVT is able to predict future prices more accurately and
precisely because of the fact that it uses a proportional change rather than whole
amount of change whether positive or negative. On the other hand, other indicators
use whole value of change in Volume from previous close to determine future price.
That’s why PVT is able to predict a clearer picture of the outflow of money
for a particular security.
The Output of PVT can be easily drawn on a line chart. The PVT starts decreasing
when money outflow is in process. This will happen when price will be falling and
volume (selling volume) will be rising. Similarly, PVT starts rising if money is
flowing in the market. This will happen when Prices and Volume are increasing side
by side. Rising PVT also signifies that new money is flowing into the market. Ultimately,
PVT will level off, signaling an end to a prevailing trend in the near future. Similarly,
decreasing PVT implies money is flowing out of the market. If PVT starts decreasing
while moving in an upward trend, it indicates an underlying downward trend and vice
If we setup a Simple Moving Average on Line Chart along with Price Volume Trend,
the points of intersections can be referred to as trade signals. If Price Volume
Trend touches Simple Moving Average from below, this is termed as Buy Signal. Contrarily,
if PVT touches Simple Moving Average from above, it indicates a Sell Signal. Divergence
among the two is considered as a possible change in the direction of the prevailing
trend i.e. upward or downward. PVT is highly regarded for detecting price reversals
and Pullbacks in the near future. Reason behind it is that, PVT is more sensitive
to price movements as compared to Other Similar Indicators including OBV and Accumulation/Distribution
Advantages of Price Volume Trend
- Price Volume Trend is more accurate and exact as compared to On-Balance Volume Indicator
in predicting future price movements. Reason behind it is that, PVT determines the
proportional weight of each change. OBV, regardless of the amount of change adds
all incremental changes and subtracts all negative changes in price of a security.
The PVT is indicates a precise picture of money inflow and outflow for a particular
currency during a specified period of time. Not only this, the PVT also shows a
Volume Line as a tool for displaying the proportional changes in a particular currency
pair’s price trend.
Disadvantages of Price Volume Trend
- The biggest demerit of PVT is that, it doesn’t exhibit trade signals. The
trader must use another indicator like Simple Moving Average to determine right
time to buy or sell.