Trade Volume Index Indicator Technical Analysis

Trade Volume Index Indicator Formula

Trade Volume Index indicator is a technical indicator. It determines whether traders buy the security or sell the security. It is basically based on tick data. In comparison to many technical indicators, this indicator is determined on the basis of Intraday Price Values. TVI is the abbreviation of the Trade Volume Index.

Trade Volume Index Indicator FAQ

What is Trade Volume Index Indicator?

The TVI of Trade Volume Index is designed to be calculated using day trading “tick” price data. The TVI depends on the premise that trades taking place at higher “asking” prices are the buy transactions On the other side, trades at lower “bid” prices are the sell transactions. The TVI helps to determine whether a security is being accumulated or distributed.

How to Use Trade Volume Index Indicator?

Generally day traders use the trade volume index indicator.  The reason is active intraday traders are most concerned with how stocks perform at the key levels and have to make swift decisions. When stock prices create a flat resistance level, at the same time the TVI indicator is rising, look for prices to breakout to the upside. Oppositely, when stock prices create a flat support level and the indicator is falling, just look for prices to drop below the support level.

How to Calculate Trade Volume Index?

Change = Price – Last price
MTV = Minimum Tick Value
When change is greater than MTV, then Direction =Accumulate.
When change is less than -MTV, then Direction = Distribute.
And when change is less than or equal to MTV and change is greater than or equal to -MTV, then Direction = Last Direction.
After determining the trend, the Trade Volume Index (TVI) by using this formula:
When the direction is accumulated then: TVI = TVI + Today’s Volume.
When the direction is distributed then: TVI = Previous TVI – Today’s Volume.

How to Attach the Trade Volume Index Indicator on Charts?

If traders wish to know more about the Trade Volume Index (TVI) indicator, then they can find it in the STUDIES section of Zerodha Kite. It’s also available in Kite mobile App. The Min Tick Value is 0.5. You can also check the image below to understand how to attach the TVI indicator in HDFC Bank share price chart. We can use the Trade Volume Index indicator on to any time frame charts like daily, weekly, monthly or intraday (5 minutes, 15 minutes, 1 hour, etc).

Trade Volume Index Indicator

Here, I open Upstox pro, one of the best charting platform, after Zerodha kite. There add a specific indicator on any of your favorite scripts. And, click on apply.

Trade Volume Index Indicator

What are the Top Strategies of the Trade Volume index Indicator?

Suppose, you want to buy a stock on a break of Rs.100, and the stock price has been flatlining for 2 hours. Now, you may hesitate on pulling the trigger because of the flatness in the market before occurring the breakout. However, you see that the TVI has been rising over this 2-hour period. So, it is a clear sign that traders are accumulating the stock at the asking price. Thus increasing the odds that the stock price will have legs when it clears resistance level.

Trade volume index indicator buy

For instance, I place the above example. Here, I add the BAJFINANCE script. As you can see a flat price range is going on. Once the TVI indicator line started to rise up from the ongoing range, the price also moved up.

Bearish Divergence with TVI

The next example is divergence. Here, the price made higher highs while TVI made lower lows. And, as a result, the stock price drops with a big bearish candle.

Buy Sell Divergence

The opposite scenario occurs during the bullish divergence. Here, the price made lower lows but the TVI made higher highs. And the price rise.

More about the TVI Indicator

The indicator is able to determine whether a security is distributed or accumulated. It reflects that trades are taking place at the bid price as sellers distribute the asset if the indicator is moving down. And, trades are taking place at the asking price as buyers accumulate the security if the indicator is moving upward. The prices start to move to the upwards direction if prices are flat and the TVI line is rising. Also, the prices decrease if the prices are flat and the TVI line is falling.

Here is the list of advantages and disadvantages of the indicator given below.

Advantages of the Indicator

  • Trade Volume Index is tailor-made for Day Traders. TVI indicator uses intraday price data to determine trend direction of a security.
  • This indicator highlights every change in the price of a security and can easily predict the trend of Investors i.e. Buying or Selling.
  • This TVI indicator holds good even when the prices don’t deviate significantly from their previous close.

Disadvantages of Trade Volume Index Indicator:

  • The formula of Trade Volume Index heavily relies on past data including previous TVI. Also, the prices of day end are most important, Trade Volume Index doesn’t consider the end of day data in its calculation.

Conclusion

So, it is based on the assumption that buying pressure rises when price approaches Ask price and selling pressure rises when price nears the Bid price. The outcome of this indicator is Accumulation which is shows on Purchase or Distribution which is shows on the Sale trend for the underlying security. This indicator uses volume as well as price action in its formula. This TVI indicates the amount of security purchased or sold. The Traders frequently use TVI because it uses Intraday Price Data.

Author: Ankita Sarkar

Ankita is a graduate in English language and she has also done her MBA from the Calcutta University. She has a high knack in the stock markets. She is a NISM certified Research Analyst. An experienced stock market content writer Ankita is also trading successfully on her own account.

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