The Price Volume Trend (PVT) indicator is a momentum-based tool that's used to assess the flow of money within a market. It bears resemblance to another technical analysis instrument, the On Balance Volume (OBV), as both indicators involve the accumulation of volume. However, while OBV adjusts the total daily volume by adding or subtracting based on whether the day was bullish or bearish, PVT modifies the total by only incorporating a fraction of the daily volume.
The adjustment to the PVT total is contingent upon the current day's price movement in relation to the previous day's closing price. The Price Volume Trend indicator is primarily used by analysts to validate existing trends and to identify potential trading signals through the observation of divergences.
Interpretation:
- When the PVT falls money is flowing out of this market (falling prices accompanied by increased volume).
- When the PVT rises money is flowing into this market (prices and volume are increasing together).
PS: For a version which also uses Parabolic SAR, please see: Parabolic PVT indicator.
