A cumulative total of volume adjusted to the relative changes in the instrument’s prices.
Overview
The Price Volume Trend (PVT) is a cumulative total of volume adjusted to the relative changes in the instrument’s prices. It is similar in nature to the On Balance Volume (OBV) indicator. However, unlike the OBV the PVT adds or subtracts only a portion of volume from the cumulative total in relation to the percentage of change in prices whereas the OBV adds all volume when prices close higher and subtracts all volume when prices close lower. Many traders feel this difference is a key component of the PVT that allows it to more accurately reflect the volume of money flow in and out of a trading instrument.
Price Volume Trend on the GBP/USD Daily Chart 4/4/2011
Source: VT Trader
Interpretation
The PVT can be considered a leading indicator of future price movements. A rising PVT value indicates new volume (money) flowing into the market while a declining PVT value indicates volume (money) leaving the market.
Trading signals can be generated in a few different ways using the PVT, although it is often recommended that the PVT be used in conjunction with other indicators.
In a ranging market, rising PVT values may signal a potential upward breakout while declining PVT values may signal and downward breakout.
In a trending market, the main signals from the PVT are generated by looking for divergence between the PVT indicator and the price. A bullish divergence may be an early warning sign of a market bottom and a potential upwards move in price. A bearish divergence may be an early warning sign of a market top and a potential downwards move in price.
