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Understanding the Negative Volume Index (NVI) for Trading

· 5 min read
Pineify Team
Pineify Team

The Negative Volume Index (NVI) is a neat little indicator that shows you what's happening when trading volume drops. The basic idea is that when volume is low, the "smart money" (big players like institutions) might be making moves, while high volume often means retail traders are active.

It's like having a way to peek at what the pros might be doing when the market seems quiet.

Negative Volume Index shown on a TradingView chart

What exactly is the NVI?​

The NVI is basically a running tally that only updates when today's trading volume is less than yesterday's. It was created by Norman Fosback who noticed that important moves often happen when volume drops.

Here's how it works in simple terms:

  • If fewer shares traded today than yesterday: The NVI moves based on how much the price changed
  • If volume stayed the same or increased: The NVI just stays where it was

The math looks like this:

If today's volume < yesterday's volume:
    NVI today = yesterday's NVI + (yesterday's NVI × today's price change %)
Else:
    NVI today = yesterday's NVI

It usually starts at 1000 and builds up from there, but only on those low-volume days.

About Pineify​

Pineify is basically a toolbox for making TradingView indicators and strategies easier to work with. Whether you're just starting out or you've been coding indicators for a while, it gives you helpful tools to build what you need.

Pineify website screenshot

Some handy things Pineify offers:

  • Power editor: Make indicators without needing to code
  • Ready-made templates: Grab indicators others have already built
  • Strategy creator: Set up complete trading systems with rules
  • History testing: See how your ideas would've worked in the past
The Best Pine Script Generator

Adding NVI to your TradingView chart​

Getting the NVI on your chart is pretty straightforward with Pineify:

  1. Open Pineify: Head to their site and open the editor
  2. Find NVI: Search for "Negative Volume Index"
  3. Pick it: Select the NVI from the results
  4. Tweak it: Adjust any settings if you want
  5. Add it: Click to put it on your chart
Finding and adding indicators in Pineify

You'll see the NVI as a line below your price chart, showing how it's changed over time.

How to actually use the NVI​

Here are some practical ways to use the NVI in your trading:

1. Spotting the big players​

When the NVI rises during quiet market periods, it might mean institutions are buying. Falling NVI during low volume could mean they're selling.

2. Checking the trend​

  • Rising NVI: Suggests pros might be buying
  • Falling NVI: Could mean they're selling

3. Looking for mismatches​

Watch when price and NVI don't match:

  • Price drops but NVI rises? Might be a buying opportunity
  • Price rises but NVI falls? Could be time to be cautious

4. Using moving averages​

Some traders add a moving average to the NVI line:

  • NVI above its average: Maybe time to buy
  • NVI below its average: Maybe time to sell

Good settings for NVI​

The NVI doesn't need much adjusting, but here are some common setups:

Basic stuff:​

  • Start at 1000 (that's standard)
  • It calculates automatically based on volume changes

For smoother reading:​

  • 255-period moving average (common for NVI)
  • 39-period exponential average as a signal line
  • Daily charts work best

Making it look right:​

  • Pick a color that stands out
  • Keep the line thin enough to see clearly
  • Add shading if it helps you

Pairing it up:​

NVI works better with:

  • PVI (its positive volume counterpart)
  • RSI for momentum checks
  • MACD for trend confirmation

Testing NVI strategies​

Before using NVI signals with real money, it's smart to test them out. Pineify lets you:

Possible entry points:​

  • Buy when NVI crosses above its average in an uptrend
  • Sell when NVI crosses below in a downtrend

Exit ideas:​

  • Simple buy/sell based on NVI
  • Take profit at obvious levels
  • Use stops to limit losses
  • Trail stops to lock in gains

How to test:​

  1. Set your rules (when to enter/exit)
  2. Choose position sizes and risk levels
  3. Run tests on past market data
  4. See how it would've performed
  5. Tweak things that didn't work well

Pineify handles the complicated parts so you can focus on your trading ideas.

Wrapping up​

The NVI is a handy tool for seeing what might be happening when trading gets quiet. It gives you clues about whether the big players are active, which can help spot trends before they're obvious.

Key things to remember:

  • Watch NVI moves during low volume
  • Combine it with other indicators
  • Smooth it with averages for clearer signals
  • Look for when price and NVI disagree
  • Always test your ideas first

No indicator is perfect, but NVI can be useful when combined with good risk management and other analysis. Pineify makes it easier to work with NVI and test how it might fit into your trading approach.