Negative Volume Index

The Negative Volume Index (NVI) is a cumulative indicator that tracks price changes on days when trading volume decreases from the previous day. Based on the theory that retail investors make up a larger proportion of trading activity on days with declining volume, NVI focuses exclusively on these lower-volume periods while ignoring price movements on days when volume increases.

Developed by Paul Dysart in the 1930s and popularized by Norman Fosback in the 1970s, NVI is designed to identify trends driven by retail investor activity. The indicator assumes that institutional "smart money" is more active during rising volume periods, while retail traders dominate on days with falling volume. This makes NVI complementary to the Positive Volume Index (PVI).

NVI works as a cumulative measure, meaning it maintains a running total that updates only on days when volume decreases. When volume falls, the indicator calculates the percentage change in price and adds it to the previous NVI value. When volume stays flat or increases, the NVI value remains unchanged. This selective updating creates a trend line that reflects price movements during periods of presumed retail investor activity.

What It Measures

The Negative Volume Index measures cumulative price changes that occur specifically on days when trading volume decreases from the previous day. It captures the percentage price change multiplied by the previous NVI value, creating a running total that reflects trends during declining volume periods.

When to Use

• Retail Activity Tracking: Identifies price trends when retail investors are presumed to be more active (volume-down days)
• Divergence Detection: NVI moving opposite to price may signal weakening retail support or underlying market conditions
• Trend Confirmation: Rising NVI during uptrends suggests broad retail participation; falling NVI during downtrends suggests retail distribution
• Complement to PVI: Used alongside Positive Volume Index to compare retail versus institutional sentiment
• Long-term Trend Analysis: Most effective for identifying major trends rather than short-term movements
• Bull Market Identification: Historically, NVI above its 255-day moving average has been associated with bull markets

Interpretation

• Rising NVI: Indicates prices are increasing on days with declining volume; suggests retail buying or accumulation
• Falling NVI: Indicates prices are decreasing on days with declining volume; suggests retail selling or distribution
• Bullish Divergence: Price makes lower lows while NVI makes higher lows; retail buyers may be accumulating despite falling prices
• Bearish Divergence: Price makes higher highs while NVI makes lower highs; retail sellers may be distributing despite rising prices
• Flat NVI During Price Move: Volume hasn't been decreasing during the price move; may indicate institutional-driven rather than retail-driven price action
• NVI Above 255-Day MA: Historically associated with bull markets (per Fosback's research); suggests retail optimism and broad market participation
• NVI Below 255-Day MA: Historically associated with bear markets or uncertain conditions; suggests retail pessimism
• Cumulative Nature: NVI is a running total starting from the initial value (typically 0.0 or 100.0); absolute values matter less than trend direction and divergences
• Volume-Selective Updates: The indicator only changes when volume decreases, making it complementary to price-based and volume-based indicators
• Contrast with PVI: When NVI and PVI diverge significantly, it may indicate a disconnect between retail and institutional sentiment

Usage Notes

Unlike most technical indicators, NVI doesn't require period selection or smoothing parameters. It's a pure cumulative measure that responds only to volume decreases. The starting value (typically 0.0) serves as the baseline, and all subsequent values represent the accumulated effect of price changes on declining-volume days.

The indicator is most powerful when:

• Used in conjunction with a moving average (commonly 255-day) to identify bull/bear market conditions
• Compared against the Positive Volume Index (PVI) to contrast retail vs. institutional behavior
• Analyzed for divergences against price to spot potential reversals before they occur in price
• Combined with other volume-based indicators to understand the complete picture of market participation

Norman Fosback's research in the 1970s found that when NVI was above its 255-day moving average, the probability of a bull market was approximately 96%. This made NVI one of the most reliable long-term market indicators, though it's more suited for position traders and investors than short-term traders.

Default Usage

use centaur_technical_indicators::strength_indicators::bulk::negative_volume_index;

pub fn main() {
    // fetch the data in your preferred way
    // let close = vec![...];  // close prices
    // let volume = vec![...]; // volume data
    
    let previous_nvi = 0.0;  // starting value for first calculation
    let nvi = negative_volume_index(&close, &volume, previous_nvi);
    println!("Negative Volume Index: {:?}", nvi);
}

import centaur_technical_indicators as cti

# Negative Volume Index calculation
previous_nvi = 0.0  # starting value for first calculation
nvi = cti.strength_indicators.bulk.negative_volume_index(
    close, volume, previous_nvi
)
print("Negative Volume Index:", nvi)

import init, { 
    strength_bulk_negativeVolumeIndex
} from 'https://cdn.jsdelivr.net/npm/centaur-technical-indicators@latest/dist/web/centaur-technical-indicators.js';

await init();

// fetch the data in your preferred way
// const close = [...];  // close prices
// const volume = [...]; // volume data

const previousNvi = 0.0;  // starting value for first calculation
const nvi = strength_bulk_negativeVolumeIndex(close, volume, previousNvi);
console.log("Negative Volume Index:", nvi);