Price Volume Trend indicator (PVT) is a technical momentum indicator that relates price and volume. It is utilized by investors and analysts to identify the parity between the supply and demand of a stock. This indicator was invented by Joseph E. Granville.
What is the Price Volume Trend Indicator?
Traders use b0th of the Price Volume Trend and Volume Price Trend interchangeably to demonstrate this technical analysis indicator. Generally, the purpose of the Price Volume Trend indicator is to develop a relationship between the price and the volume. This PVT indicator depends on an operating accumulative volume that makes an addition or subtraction of a predetermined multiple of the proportional change in an asset’s prevailing trends and current volume.
More Important Features of the Indicator
- Just like the working principle of the Price Volume Trend Indicator, the On Balance Volume (OBV) indicator also uses the cumulative sum of volume that is a percentage of changes at the end of day prices.
- The difference between the two is that On-Balance-Volume (OBV) sums all positive end of day values and subtracts all negative closing values whereas PVT only adds or subtracts a proportion of the day end volume.
- The amount of proportion is dependent upon the size of the difference between the opening and closing volumes.
Calculation Of Price Volume Trend Indicator :
Generally, VPT is measured as volume multiplied by the change in price. It is calculated as a running total from the previous period.
VPT = Previous VPT + Volume x (Today’s Close – Previous Close) / Previous Close
It is generally calculated daily, though it can be measured over whatever timeframe with which volume data is available here. One thing must remember that some charting software platforms do not provide volume data on a timeframe lower than the daily level. Hence, this can also restrict your ability to trade using the indicator over multiple time intervals.
How do we use Price Volume Trend on the Chart?
Traders can find the Price Volume Trend (PVT) indicator under the STUDIES section in the Zerodha Kite browser app. This indicator is also available in the Kite mobile App. The default Field is again close and we can set the field open, high, low or close. Please check the image below to understand how we attached the Price Volume Trend (PVT) indicator in the HDFC Bank share price chart. You can attach the PVT indicator on to any charts in Zerodha Kite likes daily, weekly, monthly or intraday.
After Zerodha kite, here is the example from Upstox pro. The process is almost the same as before. After login account, open chart and go to the indicator section. There write down the indicator name, click on apply.
How to Successfully Trade with the Price Volume Trend Indicator?
Here are some of the best-applied trading strategies of the PVT indicator.
Signal Line Crossovers
A signal line is just a moving average of the indicator. It can be applied and used to generate trading signals. For instance, you may buy a stock when the VPT line crosses above its signal line. Oppositely, sell when the VPT line passes below its signal line.
The VPT indicator can also be used along with moving averages to confirm trending markets. For example, you could buy a stock if the 20-day moving average (yellow) is above the 50-day moving average (blue) and with rising VPT indicator values. Reversely, you also may decide to sell if the 20-day MA is below the 50-day moving average and the VPT values are falling.
PVT with ADX
The ADX also measures market trends and momentum. It can be used with the VPT indicator to determine the market trend. Here, ADX readings above 25 indicate that security is trending, while readings below 25 mean sideways price action. Hence, you could buy once the ADX is above 25 and the VPT line is above its signal line. Oppositely, you could sell when the ADX has a value below 25 and the VPT line is below its signal line.
Traders can use the VPT indicator to identify technical divergence. Divergence happens when the indicator makes a higher high or a lower low, but the asset’s price makes a lower high or a higher low. Traders could place a stop-loss order above the most recent swing high or below the most recent swing low to minimize their risk.
Key Strategic Points of PVT
- Traders use the indicator for calculating the difference between demand and supply of a particular security.
- The relative demand or supply for a particular security is denoted by the proportional change in a security’s price trend.
- Otherwise, Volume gives an indication of the force exerted by traders in a particular direction that may be upward or downward.
- If price changes considerably, then the PVT will add a significant part of the volume to PVT Value and vice versa.
- Traders use this PVT indicator to determine the strength of a trend in the market.
Advantages of the Price Volume Trend Indicator:
- The main advantage of Price Volume Trend is more accurate and exact as compared to On-Balance-Volume (OBV) Indicator in predicting future price movements which are PVT determines the proportional weight of each change.
- In this On-Balance-Volume (OBV) Indicator, regardless of the amount of change adds all incremental changes and subtracts all negative changes in the price of a security.
- The PVT is indicating a money inflow and outflow for a particular currency during a specified period of time in the stock chart. Although, the PVT also shows a Volume Line as a tool for displaying the proportional changes in a particular currency pair’s price trend.
Disadvantages of Price Volume TrendI indicator:
- The biggest demerit of PVT is that it doesn’t exhibit trade signals and this is the main disadvantage of this indicator.
As the name suggests, the Price Volume trend blends both volume and price to form a cumulative running indicator that helps to identify the price movements.