Price and Volume Trend (PVT) – Strategy, Rules, Settings, Returns (82% Win Rate)

Trading smart involves using the right tools to effectively track price moves and trade in the direction of price momentum, and which tool does it better than the Price and Volume Trend (PVT). What do you know about this indicator?

The Price and Volume Trend (PVT) indicator is a technical analysis tool that measures the cumulative volume and price changes of a financial instrument. It can be used to assess the direction and strength of the price movement. Being a cumulative indicator, new values of the product of volume and proportional price changes are continually added to the previous value to get the current value.

In this post, we will take a look at most of the questions you may have about the Price and Volume Trend indicator: what it is, how it works, and how you can use it to improve your trading strategies. Keep reading!

Key takeaways

• The Price and Volume Trend (PVT) indicator measures the cumulative volume and proportional price changes to assess the direction and strength of price movements.
• It reflects the balance between demand and supply using proportional price changes for relative supply/demand and volume for the force behind price changes.
• PVT is similar to the accumulation/distribution index, as both are cumulative indicators that combine volume and price changes to measure money flow.
• New values, calculated as the product of volume and proportional price changes, are added to the previous cumulative value.
• Positive values increase the cumulative total, while negative values decrease it.
• The PVT is plotted as a fluctuating single line in an indicator window below the price chart:
• Above zero and rising: Indicates upward price changes on high volumes.
• Below zero and falling: Indicates downward price changes on high volumes.
• We show you a complete Price and Volume Trend strategy complete with trading rules.
• If you want to look at other indicators, please read our trading indicators list.

What is the Price and Volume Trend (PVT) indicator?

The Price and Volume Trend (PVT) indicator is a technical analysis tool that measures the cumulative volume and proportional price changes of a financial instrument. It can be used to assess the direction and strength of the price movement by showing the balance between an instrument’s demand and supply. The proportional price changes indicate the relative supply or demand in the instrument, while volume shows the force behind the price change.

The PVT is similar to the accumulative/distribution index in that it is a cumulative indicator that uses volume and price changes to measure money flow in an asset. Being a cumulative indicator, new values of the product of volume and proportional price changes are continually added to the previous value to get a cumulative sum, which becomes the current value. If the new value is positive, the indicator’s cumulative total increases, and if the new value is negative, the cumulative total decreases.

As with most oscillators, the PVT is plotted in the indicator window below the price chart as a single line that fluctuates above and below a zero level, in line with the strength and direction of a trend. When the line is above zero and keeps rising, it means that there is an upward price change that happened on a huge volume. Likewise, when the line is below zero and keeps falling, it means that price changes are to the downside and they happen on huge volumes.

Price and volume Trend trading strategy – rules, backtest, returns, and performance

Let’s backtest a PVT trading strategy complete with trading rules.

We make the following trading rules:

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We backtest the trading rules on the gold price and use the ETF with the ticker code GLD. We also backtest SPY – the ETF that tracks S&P 500.

We get the following equity curve for GLD from its inception until today:

For SPY we get the following equity curve from inception in 1993 until today:

Trading statistics and performance:

• Number of trades: 251
• Average gain per trade: 0.9%
• Annual returns: 6.8%
• Win rate: 83%
• Time spent in the market: 30%
• Risk-adjusted return: 22%
• Max drawdown: 33%

There are very few trades.

This is the code we used for the backtest (Amibroker):

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How does the PVT indicator measure price movement?

The PVT indicator measures price movement by measuring the proportional change in price between the current and the previous periods using the difference in their closing prices. This proportional price change is multiplied by the volume to get a price-adjusted volume, which gives a sense of the buying or selling pressure in the market if the price change is to the upside or the downside respectively.

When the price-adjusted volume is positive, as in periods when there are price gains relative to the previous close, the PVT rises because a positive value is added to the previous PVT value. Thus, a rising PVT indicates a rising market — the bigger the PVT increase, the bigger the volume during the price gain, indicating more buying pressure or demand.

Similarly, when the price-adjusted volume is negative, as in periods when there are price losses relative to the previous close, the PVT falls because a negative value is added to the previous PVT value. Thus, a falling PVT indicates a rising market — the bigger the PVT decline, the bigger the volume during the price loss, indicating more selling pressure or supply.

What role does volume play in the PVT indicator?

The role volume plays in the PVT indicator is that it shows the force behind a price movement, which indicates the strength of the trend. It helps to measure the buying or selling pressure in the market, depending on whether the price change is to the upside or the downside.

When the volume is huge, there is a strong force behind the price movement, whether it is to the upside or downside. An upward price movement accompanied by huge volume shows a strong demand or buying pressure. On the other hand, a downward price movement accompanied by huge volume indicates a strong supply or selling pressure.

How is the PVT indicator calculated?

The PVT indicator is calculated as follows:

Step 1: Calculate the proportional price change using this formula:

Price Change = [CCP — PCP] / PCP

Where:

CPC = current closing price

PCP = previous closing price

Step 2: Calculate the price-adjusted volume as follows:

Price-adjusted Volume = Volume x Price Change

If the price change is positive, the value will be positive, but if the price change is negative (where the current closing price is lower than the previous closing price), the value will be negative

Step 3: Calculate the PVT as follows:

PVT = previous PVT + Price-adjusted Volume

Or, everything can be combined into this formula:

PVT = previous PVT + Volume x [Current Closing Price – Previous Closing Price] / Previous Closing Price

What makes PVT different from other volume-based indicators?

PVT is different from other volume-based indicators in that it uses price gains or losses and the volume to estimate the buying or selling pressure in the market whereas other volume indicators, such as the On-balance volume, simply check the direction of the price close to determine whether to add the current volume to or subtract from the previous On-balance volume to get the current value.

The PVT is most similar to the accumulation/distribution index in that both use the product of the price and volume, but while the former uses the proportional price change relative to the previous close, the latter uses the proximity of the price close to the current period’s high or low — i.e., the location of the price close relative to the current period’s range.

How can PVT help traders identify trends?

The PVT can help traders identify trends by showing the direction of the price movement. The indicator’s line moves in the direction of the price trend, at least the short-term trend. So, if the indicator is rising, the immediate trend is to the upside. On the other hand, if the indicator is falling, it means that the short-term trend is to the downside.

The indicator may also diverge from the price movement, which may suggest a trend reversal. A bullish reversal occurs when the price makes a lower low but the indicator makes a higher low. When the price makes a higher high while the indicator makes a lower high, it gives rise to a bearish divergence.

Is the PVT indicator suitable for beginners in trading?

Yes, the PVT indicator is suitable for beginners in trading, as it has only a single line that is easy to interpret. The direction of the indicator shows the direction of the short-term trend — when the indicator is going up, there is buying pressure in the market, and when it is going down, there is selling pressure in the market.

Beginners can learn how the indicator works and practice with it until they get used to it and use it to formulate trading strategies.

How does the PVT indicator work in different market conditions?

The PVT indicator works differently in different market conditions. It works best when the market is trending in one direction or making big swings. In such a condition, the indicator will move in one direction long enough to give a clear and valid signal.

On the other hand, when the market is in a tight consolidation or spiking about, the indicator may not be able to give a clear signal, as it will also be zigzagging without a direction.

Can the PVT indicator be used for both short-term and long-term trading?

Yes, the PVT indicator can be used for both short-term and long-term trading if used with the right strategy on the appropriate timeframe. The key is to apply the indicator on the right timeframe for the type of trading you want.

For short-term trading, you can use an intraday timeframe, such as the hourly, 30-minute, or 15-minute timeframe. For long-term trading, you can apply the indicator on a higher timeframe, such as the weekly or daily timeframe.

What are the key advantages of using the PVT indicator?

The key advantages of using the PVT indicator include the following:

• It shows the direction of the price trend.
• It can be used to get a sense of the strength of the trend.
• It shows whether there is buying pressure or selling pressure in the market.
• It can be used to track the demand and supply levels in the market.
• Its divergence signal may help in anticipating a market reversal.

How does the PVT indicator compare to On-Balance Volume (OBV)?

Compared to On-Balance Volume (OBV), the PVT makes use of both the price and volume data in estimating the strength behind a price move while the OBV uses only the volume data in its calculation. Both are cumulative volume indicators because they add the present measured value to the previous value to get the cumulative sum.

However, the PVT multiplies the proportional price gain or loss relative to the previous close by the current period’s volume to estimate the buying or selling pressure in the market, whereas the OBV simply checks the direction of the price close to determine whether to add the current volume to or subtract it from the previous OBV to get the current period’s cumulative value.

What trading strategies can incorporate the PVT indicator?

Trading strategies that can incorporate the PVT indicator include:

• Breakout trading strategy: This trading strategy aims to enter a trade when the price breaks out of a support/resistance level or a chart pattern, such as a triangle. When trading a breakout, you need to know if the breakout is occurring with strong momentum, especially if there is a huge volume behind it. This is where the PVT comes in. Traders can use it to know if the breakout occurs with huge volume and if there is strong buying or selling pressure as the case may be.
• Trend-continuation strategies: The divergence signal from the PVT can indicate when a pullback is likely to reverse so that the main trend will continue. A bullish divergence can be used for continuation trades in an uptrend, while a bearish divergence can be used for continuation trades in a downtrend.

Does the PVT indicator work better with specific assets?

Yes, the PVT indicator works better with assets that trade on centralized exchanges, such as stocks. The reason is that such assets have reliable volume data that can give a reliable value of the indicator.

This is unlike assets, such as currencies, which do not trade on centralized exchanges and, as such, do not have valid trading volume data for the PVT calculation. It is not advisable to use PVT for such assets.

How can traders combine the PVT indicator with other technical tools?

To combine the PVT indicator with other technical tools, traders have to understand how the indicator works and know what they want to do with it. Then, they can find the tools that can complement the indicator in creating the strategy they want to trade.

For instance, if a trader wants to use the PVT divergence signal for a trend-continuation strategy, they will have to combine it with trendlines and support/resistance level tools. The trendlines will show the trend direction, while the support/resistance level tool will identify key levels where to look out for divergence in the PVT during a pullback.

How does the PVT indicator signal buying opportunities?

The PVT indicator signals buying opportunities when it is rising, which indicates increasing demand in the market. However, you don’t trade the indicator alone. It is necessary to combine it with other analysis tools. For instance, you can combine it with chart pattern analysis.

Say the price is breaking out of a triangle chart pattern, a rising PVT can tell you that there is strong buying pressure behind the breakout. This would be a good buying opportunity.

How does the PVT indicator signal selling opportunities?

The PVT indicator signals selling opportunities when it is falling, which indicates increasing supply in the market. You don’t trade the indicator’s signal alone though. Combine it with other forms of analysis, such as chart pattern analysis.

For example, let’s say the price is breaking below a triangle chart pattern. A falling PVT can tell you that there is strong selling pressure behind the breakout, making it a good selling opportunity.

Can the PVT indicator help confirm price breakouts?

Yes, the PVT indicator can help confirm price breakouts by showing whether there is a huge volume and momentum behind the breakout. Price breakouts that occur on a small volume and poor momentum are more likely to fail than those that occur on a huge volume and momentum.

With the PVT, you can know the volume and momentum behind a breakout. If an upside breakout is accompanied by a rising PVT, it shows there is strong buying pressure (momentum and volume) in the market, so the breakout is likely to be valid. Likewise, a downside breakout accompanied by a falling PVT shows there is strong selling pressure (momentum and volume) in the market, so the breakout is likely to be valid.

How can traders use PVT to avoid false signals?

Traders can use PVT to avoid false signals by checking whether a price move is accompanied by the right signal in the indicator. For instance, if there is an upside breakout but the PVT is declining, it means the breakout is a false one and shouldn’t be traded.

Instead, the trader may watch out for the opposite move if that is part of their trading strategy.

What are the limitations of the PVT indicator?

The limitations of the PVT indicator include the following:

• The indicator cannot be useful in markets with no reliable volume data, such as the spot forex market.
• It does not work well in a market that is in a consolidation phase.
• Its divergence signals may provide poor market timing when the trend is very strong.

How does PVT react to sudden changes in trading volume?

PVT reacts to sudden changes in trading volume by spiking in the direction of the price movement. This indicates that the price move happened on a huge volume. If the price move is to the upside, the PVT will rise by a relatively large amount, and if the price move is to the downside, the PVT will fall by a relatively large amount.

Can the PVT indicator be customized for different trading styles?

Yes, the PVT indicator can be customized for different trading styles by creating trading strategies that work for each trading style and trading them on the right timeframe. For day trading, the trader can create a strategy that has an edge on the 15-minute timeframe.

When using the indicator for swing trading, the strategy may be created to have an edge on the daily or 4-hourly timeframe.

What time frames work best with the PVT indicator?

The time frames that work best with the PVT indicator will depend on your trading style and backtesting results. You can use the indicator on intraday timeframes, such as the hourly, 30-minute, and 15-minute timeframes for day trading and the 5-minute to 1-minute timeframe for scalping.

To know the timeframe that works best, you will need to backtest the various intraday timeframes to find out. You can also use the indicator for swing trading on the daily and 4-hourly timeframes if backtesting results show that your strategy has an edge on those timeframes.

Is PVT more effective in trending or ranging markets?

The PVT is more effective in trending markets than in ranging markets, especially when using it for breakout trading strategies. However, it can still work in ranging markets if the range boundaries are wide enough for a reasonable price move.

In this case, it is best to use the PVT divergence signal to trade reversals at the upper and lower boundaries of the price range.

What platforms support the Price and Volume Trend (PVT) indicator?

Almost every, if not all, platforms support the Price and Volume Trend (PVT) indicator.

Many of them have the indicator preinstalled so you easily select it from the indicator section. However, if it is not preinstalled in your trading platform, you can get a programmer to create a custom version for your platform.

How can you start using the PVT indicator in your trading strategy?

To start using the PVT indicator in your trading strategy, you have to learn how it works so you can find how to incorporate it into your existing strategy or create a new trading strategy with it. The latter is preferable because it may be easier to backtest.