Negative Volume Index (NVI) Definition
The Negative Volume Index (NVI) is a technical indicator used to ascertain price changes in cryptocurrency when the volume has decreased from the previous day. With NVI, smaller volume days are thought to bring about significant price change. It’s used by traders and investors to capture the ‘smart money’ – a moment when the professionals are trading.
Negative Volume Index (NVI) Key Points
- NVI is a tool that analyzes the effect of falling trade volume on price volatility.
- Increments in NVI are associated with professional or ‘smart money’ activities.
- It’s largely based on the assumption that the ‘crowd’ takes a backseat when volume is down.
- NVI, along with its counterpart Positive Volume Index (PVI), provide insights mostly used in “contrarian” investing.
What is the Negative Volume Index (NVI)?
In trading, the NVI is a cumulative indicator that uses changes in trading volume to deduce potential changes in price. It operates under the assumption that on days when volume decreases, the ‘smart money’ is active, leading to significant price changes.
Why is the Negative Volume Index (NVI) important?
NVI is important as it helps investors and traders identify potential buying or selling opportunities. When NVI is combined with a moving average, it generates a clear buy or sell signal. When the NVI is above its moving average, it signals a potential buy opportunity, while when the NVI drops below its moving average, it could be a sell indication.
Where does the Negative Volume Index (NVI) fit in the crypto trading?
In crypto trading, NVI can be used as a tool to gauge the behavior of the ‘smart money’ or experienced traders. Cryptocurrency markets are known for their volatility, and the NVI can help signal potential price movements amidst this volatility.
When should traders use the Negative Volume Index (NVI)?
Traders should use NVI in conjunction with other technical analysis tools for more accuracy in prediction. It’s especially significant when the NVI surpasses its moving average as this indicates a potential uptrend.
How does the Negative Volume Index (NVI) work?
NVI operates on the premise that on lower volume days, sophisticated investors are more likely to be active and cause significant price changes. If the volume is down from the previous day, the NVI is adjusted in proportion to the price change. Conversely, if it’s up, there’s no change to NVI. The NVI, in a nutshell, is designed to capture the effect of ‘smart money’ moving the market when fewer participants are trading.
