The Negative Volume Index (NVI)

The Negative Volume Index (NVI) is a technical analysis indicator that was developed by Paul Dysart in the 1930s. It is used to track changes in the trend of the stock market by measuring the relationship between volume and price.

How it works

The Negative Volume Index is calculated by dividing the current price by the previous day's closing price and multiplying it by the previous day's NVI. The result is then added to the previous day's NVI. If the current day's volume is less than the previous day's volume, the NVI is left unchanged.

The Negative Volume Index is based on the premise that, in a healthy market, prices should rise when trading volume is high and fall when the volume is low. In contrast, in a weak market, prices should rise when the volume is low and fall when the volume is high. The Negative Volume Index tracks changes in the trend of the stock market by calculating a cumulative total of the NVI values over time.

Advantages

One of the main advantages of using the Negative Volume Index is that it helps to identify trends in the market that may not be evident from other technical indicators. This is because the NVI takes into account the relationship between volume and price, which is an important factor in determining market trends. In addition, the Negative Volume Index can be used to identify potential buying opportunities in the market by identifying stocks that are undervalued.

Disadvantages

One of the main disadvantages of using the Negative Volume Index is that it can be difficult to interpret in certain market conditions. For example, in a market that is experiencing high volatility, the NVI may produce false signals, leading to incorrect investment decisions. In addition, the Negative Volume Index may not be suitable for all investors, as it requires a certain level of technical expertise to interpret.

Conclusion

In conclusion, the Negative Volume Index is a technical analysis indicator that is used to track changes in the trend of the stock market by measuring the relationship between volume and price. While it has its advantages, such as its ability to identify trends that may not be evident from other technical indicators, it also has its disadvantages, such as its potential to produce false signals in a volatile market. As with any investment strategy, it is important to do your own research and consult with a financial advisor before making any investment decisions based on the Negative Volume Index.