About the PVT
The price volume trend (PVT) combines price and volume to create a hybrid trading indicator from the two variables. The indicator helps to identify a forex pair’s price direction and the strength of the price change.
Using the Price Volume Trend
The PVT incorporates a cumulative volume line that adds or subtracts a multiple of the percentage change in a share price’s trend and current volume. This is dependent on the forex pair’s upward or downward movements. If the price declines, the PVT indicator goes lower due to the negative value, and vice versa if the price increases.
The calculation for price volume trend is as follows,
VPT = Previous PVT + Volume x (Today’s Close - Previous Close) / Previous Close
The PVT indicator is vital in understanding the balance between demand and supply. The percentage change in the share price trend shows the respective supply or demand of a particular security, while the volume is indicative of the force behind the trend.
The basic idea behind the price volume trend is that the indicator should move in the same direction as price and mostly match the magnitude of the move. Under general assumption, when price moves are partnered with low volume, this in turn puts the market at risk for a reversal in trend.
The PVT may be used in conjunction with a signal line crossover to generate a trading signal. Additionally, it could also be used with moving averages and the average directional index to identify and confirm trending markets. The price volume trend also allows you to find technical divergence. A divergence takes place when the indicator makes a higher high or a lower low, however, the security’s price makes a lower high or a higher low.