Tracking Forex using the Price and Volume Trend Indicator

Terry Allen

By: Terry Allen

 
The Price and Volume Trend indicator (PVT) has no acclaimed designer. It is a momentum indicator that is an enhancement of Joseph E. Granville’s famous On Balance Volume Indicator. Both of them measure the strength of a trend. In addition, the PVT was designed to lead future price movements.
 
The PVT is an enhancement of the OBV and the main difference is as follows. Basically, the OBV subtracts all volumes when price records a lower daily close and adds them in the case of a higher daily price close. In contrast, PVT subtracts or adds only a proportion of the volume from its cumulative total in relation to a percentage change in price.
 
In Forex terms, expert consensus favors the PVT as a more accurate indicator for measuring money flow out and in of currency pairs. The PVT exploits a volume line as a means of monitoring the percentage change in the price trend of a currency pair as a method of determining the market’s supply or demand of the pair. One of the PVT’s main design features is that it is capable of forecasting the directional changes in price. For example, if the price of a currency pair is falling, but the readings of the PVT begin to rise, then you should consider that this is a strong buy signal.
 
The PVT is considered much better at detecting reversals than the OBV because of its improved design. More specifically, the OBV adds the same amount of volume regardless of whether price closes higher by just a small percentage or by many multiples of its daily opening value. In contrast, the PVT adds volume in proportion to the difference of price’s opening and closing values. This enhancement provides PVT with the edge because it is more sensitive to price changes than the OBV and has achieved a better track record of detecting price reversals over time.
 
The PVT tracks price trends and identifies the birth of a new bear channel if it breaks to the upside whilst signifying the possible creation of a bull channel by diverging to the downside. PVT readings are determined by subtracting the present day’s price close from its previous one and then multiplying the resultant by volume. The final value is finally calculated by dividing it by yesterday’s price close and adding the result to yesterday’s PVT value.
 
You can best use the PVT to help you determine new trading opportunities by detecting divergences between it and the current price trend as already discussed. You are also advised to confirm all PVT observations by using other technical indicators that are capable of validating its signals.
 
About the Author
Terry Allen

Terry Allen is a career Forex trader who has written hundreds of articles for DailyForex and other industry websites. He is the co-author of an Amazon e-book titled Kick-Start Your Forex Career, which outlines the information that everyone needs to know before starting to trade Forex. Terry has been featured on Benzinga and Seeking Alpha.

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Sunita Sharma
2010-12-21 12:33:09Z

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