The Secret to the Positive Volume Index

Zahir Shah |

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your trading strategy in the foreign exchange market involves determining each day’s trading volume, it means that you can be on a profitable forex trading career path – you can easily identify the dominant action of forex traders. And with this strategy, apart from the useful predictions of different trading behaviors, you can name the particular days when the market becomes active, or when it becomes relatively quiet.

In such a case, you can discern which days are more likely to be profitable, and which days are unprofitable. And, if you want to get the lowdown of concerns with trading volume, lessons about the Positive Volume Index will do you good!

PVI 101

The Positive Volume Index (or PVI) is a momentum indicator that dwells on the measurement of price changes. It was developed by the seasonal traders Norman Fosback and Paul Dysart. It allows analysis of the trading activity, as well as market noise on particular market conditions. It comes in especially useful on days when today’s volume exceeds yesterday’s volume.
A factor that contributes to the reliability of the Positive Volume Index is its preference for days with higher trading volume. It follows that when the indicator is up, it is a signal to start selling; it implies that the prices on the forex market are appreciating. Conversely, if the indicator is low, it implies that the prices are depreciating, which makes it an ideal day to be a buyer.

It’s Time to Calculate

The calculation for the Positive Volume Index can be quite lengthy compared to other calculations for forex trading indicators; it requires three values:

  1. Yesterday’s PVI
  2. Today’s closing price, and
  3. Yesterday’s closing price.

First, take today’s closing price and from it, and subtract yesterday’s closing price. Then, divide the result by yesterday’s closing price. Next, multiply the quotient with yesterday’s PVI. And finally, add yesterday’s closing price to the product.

**representations: CP = closing price

The Formula:

PVI = {yesterday’s PVI X [(today’s CP – yesterday’s CP) ÷ yesterday’s CP]} + yesterday’s PVI

The Last Word

Using the Positive Volume Index is a profitable trading strategy. Although the calculations can be rather complicated, it is a reliable indicator since it yields significant results; only basic arithmetic skills are necessary, and once you get the hang of the formula, it’s easy to understand. It’s a useful tool for an active volume trader since it weighs the market activity on particular days. Also, it can be employed for daily or weekly trading.

Mr. Rohit from MTrading India has contributed in this post. 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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