Normalized Volume Index

昨天

In the realm of technical analysis, volume is more than just a measure of market activity—it’s a window into trader psychology. Two classic indicators that harness this insight are the Positive Volume Index (PVI) and Negative Volume Index (NVI). Developed in the early 20th century by Paul L. Dysart and later refined by Norman G. Fosback in 1976, these tools aim to distinguish between the behavior of the so-called “smart money” and the broader market crowd.

- Positive Volume Index (PVI) tracks price changes only on days when trading volume increases. It assumes that rising volume reflects the actions of less-informed retail traders—those who follow the herd.
- Negative Volume Index (NVI), on the other hand, focuses on days when volume decreases, under the premise that institutional investors (the “smart money”) are more active when the market is quiet.
This dichotomy allows traders to interpret market sentiment through the lens of volume behavior. For example, a rising NVI during a price uptrend may suggest that institutional investors are quietly accumulating positions—often a bullish signal.

Traders use PVI and NVI to:
- Confirm trends: If NVI is above its moving average, it often signals a strong underlying trend supported by smart money.
- Spot reversals: Divergences between price and either index can hint at weakening momentum or upcoming reversals.
- Gauge participation: PVI rising faster than price may indicate overenthusiastic retail buying—potentially a contrarian signal.
These indicators are often paired with moving averages (e.g., 255-day EMA) to generate actionable signals. Fosback’s research suggested that when NVI is above its one-year EMA, there’s a high probability of a bull market.

While PVI and NVI are cumulative indices, normalizing them—for example, by rebasing to 100 or converting to percentage changes—offers several benefits:
- Comparability: Normalized indices can be compared across different assets or timeframes.
- Clarity: It becomes easier to visualize relative strength or weakness.
- Backtesting: Normalized values are more suitable for algorithmic strategies and statistical analysis.
Normalization also helps when combining PVI/NVI with other indicators in multi-factor models, ensuring no single metric dominates due to scale differences

In essence, PVI and NVI offer a nuanced view of market dynamics by separating the noise of volume surges from the quiet confidence of institutional moves. When normalized and interpreted correctly, they become powerful allies in a trader’s decision-making toolkit.

How to use this (Educational material):
For instance, on average, when the Negative Volume Index (NVI) remains above its midline, the market tends to trend positively, reflecting consistent institutional participation. However, when the NVI dips and stays below the midline, it often signals a negative trend, indicating that smart money is stepping away or reducing exposure.
Another telling scenario occurs when the Positive Volume Index (PVI) drops below the NVI. While this might coincide with a brief price dip, institutions often interpret this as an opportunity to buy the dip, quietly accumulating positions while retail participants exit in panic. The result? A market recovery driven by smart money.
Conversely, when the PVI consistently remains above the NVI, it may point to retail enthusiasm outpacing institutional support. This imbalance can flag a tired or overextended trend, where the smart money has already positioned itself defensively. When this pattern persists, there's a high likelihood that institutions will pull the plug, leading to a pronounced trend reversal.

21 小時前

發行說明

- Included Bollinger Bands to empirically assess the statistical significance during trend changes at crossover points between the normalized NVI and its midline.

6 小時前

發行說明

- Added a toggle to switch calculations between raw values and smoothed values through smema for both NVI and PVI.

6 小時前

發行說明

- Added length input for the ROC of NVI/PVI