Positive Volume Index (PVI) – What It Is & How to Trade with It

Positive Volume Index (PVI) – What It Is & How to Trade with It

What is the Positive Volume Index (PVI)?

The Positive Volume Index (PVI) is a trend-following indicator developed by Paul Dysart and later refined by Norman Fosback. It focuses on price movement during high-volume trading days, assuming that retail traders are active when volume increases. The PVI helps traders understand how price behaves when the market experiences above-average trading volume.

The PVI formula is:

• If today’s volume is higher than yesterday’s volume:
  PVI = Previous PVI + [(Current Price – Previous Price) / Previous Price] × Previous PVI
• If today’s volume is lower than yesterday’s volume:
  PVI remains unchanged

Where:

• Previous PVI = The last calculated PVI value.
• Current Price = The most recent closing price.
• Previous Price = The closing price of the previous period.

Key Features of Positive Volume Index

• Tracks price movement on high-volume days.
• Helps confirm trends and breakout signals.
• Often paired with a 255-day moving average for trend validation.

How to Use PVI in Forex Trading

1. Trend Confirmation Strategy

Traders use PVI to validate the direction of the trend:

• Bullish Trend: PVI is above its 255-day moving average, suggesting strong buying interest.
• Bearish Trend: PVI is below its 255-day moving average, indicating potential weakness.

2. Retail Trader Sentiment Strategy

The PVI helps analyze retail trader participation during high-volume periods:

• Buy when: PVI is rising, and price is making new highs.
• Sell when: PVI is falling, and price is struggling to break resistance.

3. PVI Divergence Strategy

Divergence between price and PVI can indicate potential trend reversals:

• Bullish Divergence: Price makes a lower low, but PVI forms a higher low (buy signal).
• Bearish Divergence: Price makes a higher high, but PVI forms a lower high (sell signal).

4. PVI with Moving Averages

Pairing PVI with a moving average (e.g., 50 EMA) improves trade accuracy:

• Buy when: PVI is rising, and price is above the 50 EMA.
• Sell when: PVI is falling, and price is below the 50 EMA.

Pros and Cons of Using Positive Volume Index

✅ Pros:

• Helps traders understand how price moves with volume surges.
• Useful for identifying breakouts and trend continuation.
• Works well with long-term trend-following strategies.

❌ Cons:

• Less effective in low-volume or quiet market conditions.
• Requires confirmation from other indicators for best results.

Final Thoughts

The Positive Volume Index (PVI) is a useful tool for analyzing price action during high-volume periods and confirming market trends. When combined with moving averages or divergence analysis, PVI enhances trade accuracy and market insight.