The Price Volume Trend (PVT) indicator plots the cumulative volume of trades in a way that shows the strength of a price trend. If many traders are buying or selling at a certain price, the PVT can help with evaluating how strong the trend is and the likelihood that it will continue.
PVT is calculated by taking the percentage change in the price between the prior closing price and the current closing price, multiplying that number by the volume, and adding it to the prior period’s PVT.
Supply and Demand and The Force
Because PVT is based on comparing the prior trading period’s closing price with the current period’s closing price, it could be called an indicator of supply and demand, with volume factored in as a measure of the force of price trends. For traders who follow a strategy based on a tight prediction of changes in the momentum, PVT provides confirming data when other indicators show the trend may be about to change. Click this link to access an economic calendar for your trading strategies.
Changes in volume, adjusted for price, are precursors to a change in price. PVT runs along with and slightly ahead of price change. PVT is also a useful tool for those who use technical analysis to make buying and selling decisions based on when an indicator crosses above or below a signal line.Price Volume Trend | Indicator Series Click To Tweet
Where Volume Goes, Price Follows
PVT operates on the idea that generally where the volume goes, the price will follow. This is why PVT can confirm information from other indicators. It can also provide useful context for divergences when other indicators are going in one direction, but price is going in another. In cases of divergence PVT can point towards where the price is likely to go next. If the price is going up, but PVT is not, the upward trend may not be strong. Similarly, if the price is down, but PVT is not, the downward trend may be soft. In either instance it might pay to sit tight.
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