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Negative Volume Index Indicator Technical Settings

Negative Volume Index In Zerodha Kite2

Negative Volume Index indicator or NVI is a cumulative indicator. It uses the change in volume to decide when the smart money is active. This indicator is first developed by Paul Dysart in the 1930s. The Market Technicians Association selected Dysart for its annual award in 1990. This indicator works under the assumption that smart money is active on days when volume decreases. Also, it works under the assumption the not-so-smart money is active on days when volume increases.

Negative Volume Index Indicator FAQ

How do you use a negative volume index?

The negative volume index is a trendline that can help an investor to follow how a security’s price is changing with effects from volume. The NVI is higher when the price is increasing with decreased volume and vice versa. This means a large number of investors are investing in it.

What does negative volume mean?

Negative Volume index is one of the oldest indicators, used in the modern-day charting. Basically, the negative volume is a technical indication line that uses to identify the market trend and reversal.

How to Calculate the Negative Volume Index?

Negative Volume Index (NAI) calculation can be done through some quick and straight steps. It has a formula:

NVI= PNVI+(TCP − YCP/YCP​×PNVI)

  • here, PNVI= Previous NVI
  • YCP= Yesterday’s closing price
  • TCP= Today’s closing price
Calculation 1: Negative Volume Index (NVI)

To calculate the Negative Volume Index, compare the current day’s volume to the previous day’s volume. When today’s volume is greater than yesterday’s volume then today does not qualify as a Negative Volume day. Therefore, today’s net price change is assumed to be zero then it remains unchanged at yesterday’s level. But, if today’s volume is less than yesterday’s volume, then today does qualify as a Negative Volume day.

How to Use the Negative Volume Index?

Here, you will get step-by-step guidance on the usage of the indicator with different trading platforms. Let’s start with Zerodha Kite.

Usage of NVI with Zerodha Kite

The Negative Volume Index indicator can be found in the STUDIES section in the Zerodha Kite browser app as well as in the Kite mobile App.

We can attach the NVI indicator on to any charts of Zerodha Kite– be it daily, weekly, monthly or intraday. Check the image below to understand how we attached the NVI indicator in the HDFC Bank share price chart and what are the default parameters for NVI. The Periods are 255 and we can set the price field open, high, low or close. The default Moving Average Type is simple. However, traders can change the PERIOD and Moving Average Type and Field as per their convenience.

Negative Volume Index In Zerodha Kite

We may calculate the Negative Volume Index for any time interval, such as minutes, hourly, daily, weekly, and monthly. Traders may calculate this indicator using any market index, stock or commodity, as long as there is data for closing price and volume.

Negative Volume Index In Zerodha Kite

Usage of NVI with Upstox

Now, let’s check the Upstox Pro platform. First login your account, then open any of your preferred charts. After that, open indicator section, there search for the Negative Volume Index indicator. If you want to do any customization, you can do it by the available options. Lastly, click on the Apply option to get the indicator on your chart.

Negative Volume Index Indicator

Negative Volume Index Indicator Technical Strategy

Now, come to the most vital part of the content, Negative Volume Index Indicator Technical Strategy. Here, first, have a look a the most simple strategy co-related with volume.

Negative Volume relation Pic

Look at the picture, here, NVI (Negative Volume Index) rises on days of the positive price change on lower volume. On the other side, NVI falls on days of the negative price change on lower volume. Besides this, NVI is unchanged on days of higher volume no matter what the price action moves.

NVI Buy Sell

Here, comes the 2nd strategy. As you know, the red line is a 255-period simple moving average. When the index line crosses the MA line from below and goes above it, the bullish trend is coming forward. Hence, you can buy or take entry from the crossing level. The exact opposite scenario happens during a bearish trend. When the index line cross the MA and goes below it, sellers can take entry there.

Bearish Divergence Chart

The next strategy is Divergence. Divergence happens when price and index direction does not match with one another. Like the above picture, when price makes higher highs but the indicator makes a lower low, the price is going to slow down.

Key Points

  • The NVI combines both price inputs as well as volume to form an indicator of when so-called smart and not-so-smart money is active.
  • Generally, markets moving off high volume are virtually ignored by the NVI indicator.
  • The indicator should not be traded in isolation. All indicators should be used in other methods of technical analysis.
  • The Negative Volume Index measures volume on the points that the volume is less than the previous point.

Conclusions

The Negative Volume Index is a hybrid indicator. It combines inputs from Paul Dysart and Norman Fosback. They designed this indicator for broad market indices and exchange volume. In the Negative Volume Index, the counts’ price changes when volume decreases and discounts price changes when the volume increases. Traders can use this technical indicator on stocks and ETFs, but NVI does not always act as expected. The Negative Volume Index will produce some great bullish/bearish divergence signals with some stocks. Traders should not take decisions only on the basis of NVI, as with all indicators.

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