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.
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.
