Price and Volume Trend
The Price and Volume Trend is a momentum indicator that was developed as an enhancement to the very popular On Balance Volume Indicator. The PVT has no acclaimed designer.
The PVT can be considered as a leading indicator of future price movements. The PVT Indicator is similar to the On Balance Volume indicator as it is also used to measure the strength of a trend.
The difference between the OBV and the PVT is that where the OBV adds all volumes when price achieves higher daily closes and subtracts them when price registers a lower daily close, the PVT adds or subtracts only a portion of the volume from the cumulative total in relation to a percentage change in price.
The general market consensus is that this difference enables the PVT to more accurately represent money flow volumes in and out of a stock or commodity.
The Price and Volume Trend Indicator uses a volume line to monitor the percentage change in the price trend of a share in order to determine its relative market supply or demand.
The PVT has been designed so that it is capable of forecasting directional changes in price. For instance, if the price of a stock is rising and the PVT begins to fall, then this is indicative that a price reversal could occur very soon.
The general consensus is that the PVT is more accurate at detecting new trading opportunities than the OBV because of the differences in their construction.
The OBV is designed so that it adds the same amount of volume whether the price closes upwards by just a small fraction or by multiples of its day opening value. On the other hand, the PVT adds volume proportional to the amount the price closed higher.
This distinction means that the PVT is more sensitive to changes than the OBT and, as such, has proven to be more accurate at determining significant price changes over the long haul.
The PVT has a tendency to follow the trend and indicates changes in the directional movement of price when it breaks to the upside in bear channels and to the downside in bull channels.
The PVT is calculated by subtracting today’s price close from yesterdays and then multiplying the resultant by volume. This value is then divided by yesterday’s price close and the result added to yesterday’s PVT value.
Traders can best use the PVT to locate new trading opportunities in the following ways:
Detect diverges between PVT and the current price movement.
Look for breakouts of the PVT if trending in the same direction as the price. A bullish breakout may be an early indication of a potential buying opportunity as the market is beginning to form a bottom. Likewise, a bearish divergence could be indicative of a possible selling opportunity as the market may be in the process of creating a top.
Experience and research has demonstrated the PVT is best used with other indicators that are capable of validating its trading recommendations.