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Price
Volume Trend
Description
The
Price Volume Trend (PVT) is similar in concept to On
Balance Volume in that it is a cumulative
total of volume that is adjusted depending on
changes in closing prices.
But whereas OBV adds all volume on days
when prices close higher and subtracts all volume
on days when prices close lower, the PVT adds only
a portion of the daily volume.
The amount of volume added to the PVT is a
function of the amount by which prices rose or
fell relative to the previous day's close.
PVT
= (((C-ref(C,-1)) / ref(C,-1)) * V) + I
Where:
C
= Today's
closing price
ref(C,-1) =
Yesterday's closing price
V =
Today's volume
I =
Yesterday's Price Volume Trend
The
PVT is calculated by multiplying the day's volume by the
percentage change of the underlying security and adding
this value to a cumulative total. For
example, if the security closed up 0.5% and volume was
10,000 shares, we would add 50 (i.e., 0.005 * 10,000 =
50) to the PVT.
If the security had closed down 0.5%, we
would have subtracted 50 from the PVT.
Interpretation
The
interpretation of the Price Volume Trend is
similar to the interpretation of On Balance Volume
and the Volume Accumulation/Distribution Line.
Many
investors feel that the PVT more accurately illustrates
the flow of money into and out of a security than does
OBV.
This is because OBV adds the same amount of
volume to the indicator regardless of whether the
security closes up a fraction of a point or doubles in
price.
However, the PVT adds only a small portion
of volume to the indicator when the price changes by a
small percentage and adds a large portion of volume to
the indicator when prices change by a large percentage. |
