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.
- 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.
- If the PVT then levels off, it is often an early warning that the trend
is finishing.
- Declining PVT indicates that the smart money is liquidating.
- 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.
