Negative Volume Index
Volume & money flow
The NVI changes only on days with lower volume than the day before. The idea behind it (Paul Dysart, later Norman Fosback): on quiet days the 'smart money' trades; on busy days the crowd.
In its original form this indicator uses volume and/or the daily range (High/Low). The scanner only has closing prices and approximates those inputs (see the note at the bottom). So treat the absolute values as indicative; the direction and the crossings remain usable.
Construction & calculation
- Start at 1000.
- If today's volume is lower than yesterday's, add the percentage price change to the NVI.
- If the volume is higher or equal, leave the NVI unchanged.
- Compare the NVI with its own average over 255 days (about one year).
If Volume(today) < Volume(yesterday):
NVI = NVI(yesterday) x (1 + percentage price change)
Otherwise: NVI = NVI(yesterday)
Interpretation
- NVI above its SMA(255): the smart money is buying. Fosback found that this coincided with a bull market with about 95% probability.
- NVI below its SMA(255): no confirmation. Note that this is not a strong bear signal — the NVI is above all a bull confirmer.
- Moves very slowly; this is a big-picture indicator.
How the signal works in this scanner
Buy signal (green)The NVI crosses its SMA(255) from below to above within the last 15 bars and is still above it.
Sell signal (red)The NVI crosses its SMA(255) from above to below and stays below it.
Watch-outs & pitfalls
- Fosback's statistic held for broad market indices, not for individual stocks.
- Requires a long history to make the SMA(255) meaningful.