Negative Volume Index (NVI) - Indicator Formula

This indicator correlates a decrease in volume with the change in the share price according to the following law:

if V( t ) < V( t - 1 ):

NVI( t ) = NVI( t - 1 ) + ( ROC1( t ) * NVI( t - 1 ) )

if V( t ) >= V( t - 1 ):

NVI( t ) = 1

where:

ROC1( t ) =C( t ) - C( t - 1 ) / C( t - 1 )

C( t ) = closure of the current period

C( t - 1 ) = closure of the previous period

V( t ) = current Volume

V( t - 1 ) = previous Volume

NVI( t ) = NVI of the current period

NVI( t - 1 ) = NVI of the previous period

The NVI index measures the strength of the trend during market periods with a declining volume that is then considered a complement to the PVI; due to its structure it changes in value only when volumes decrease, since it assumes that the smart money takes a steady position on days when the volume decreases; for this reason these are the days to be considered as they incorporate a higher content to formulate valid assumptions about future trends.