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Trade Volume Index
Description
The Trade Volume Index (TVI) is designed to calculate on intraday
securities with "minutes per bar" set to zero (i.e., a tick chart).
It is calculated by adding each trade's volume to a cumulative total
when the price ticks up by a specified amount, and subtracting the
trade's volume when the price ticks down by a specified amount. It's
based on the premise that trades taking place at the higher "ask"
price are buy transactions (from market marker or specialist to
trader) and trades at the lower "bid" price are sell transactions
(from trader to market maker or specialist). The TVI oscillates
around zero. Values above zero indicate net buying pressure, whereas
values below zero indicate net selling pressure.
The TVI is similar to On Balance Volume,
except the TVI continues to cumulate the volume (be it on the buy or
sell side) if the price is unchanged. Tick charts (especially of
stock prices) will often display trades at the bid or ask price for
extended periods without changing (creating a flat spot). The TVI
continues to assign the trade volume during these extended flat
periods to either the buy or sell side (depending on its last price
change). The On Balance Volume indicator
only assigns volume when price changes occur. This works well for
daily charts but not for tick charts.
MetaStock Pro prompts you to enter the "Minimum Tick Value". The
Minimum Tick Value controls when volume switches from the buy side
to the sell side. If the absolute value of the uptick or downtick is
less than the Minimum Tick Value, MetaStock Pro will continue to
assign the volume to the current side (i.e., buy or sell side). If
the absolute value is greater than the Minimum Tick Value and the
price changes direction, MetaStock Pro will switch and begin
assigning volume to the opposite side.
Although the TVI will plot on any chart, it was originally designed
to analyze intraday tick charts. Therefore, you may want to use
On Balance Volume for non-tick charts
(i.e., 5-minute, hourly, daily, weekly, monthly). However, the TVI
can be used with non-tick data by increasing the Minimum Tick Value.
For example, you could set the Minimum Tick Value to a large value
(e.g., 1, 2, 3, 4 points or more) on a daily stock chart. This
produces a smoothing effect when compared to
On Balance Volume. Volume will cumulate in the direction of the
trend until the price reverses by the specified number of points
from a previous trough or peak. When this occurs, volume will then
begin to cumulate in the opposite direction.
Interpretation
The TVI helps identify whether buyers or sellers are in
control. If the TVI is trending up, it indicates that buyers are in
control. If the TVI is trending down, it indicates that sellers are
in control. If the TVI is above zero, it indicates that net buying
has taken place over the time period displayed. If the TVI is below
zero, it indicates that net selling has taken place over the time
period displayed.
If a large number of trades are taking place at a specific price
level (i.e., a flat spot forms on the tick chart) and the TVI is
rising (falling), look for the price to break out on the upside
(downside).
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