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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). |
