Positive Volume Index (PVI): What "Uninformed" Trading Days Tell You About the Market

Most volume indicators focus on how much trading is happening. The Positive Volume Index (PVI) asks a more specific question: what does price do on the days when trading activity actually picks up? The answer, according to decades-old market research, turns out to be a surprisingly reliable signal for identifying broad bull and bear markets — not by predicting the next candle, but by tracking the crowd's behavior over time.

Here's what the PVI is, the theory behind it, how it's calculated, and how it's used in practice — including its close relationship with its mirror-image indicator, the Negative Volume Index (NVI).

What Is the Positive Volume Index?

The Positive Volume Index is a cumulative indicator that only updates on days when trading volume increases compared to the prior day. On days when volume falls or stays flat, the PVI simply carries forward unchanged.

The theory behind it, popularized by analyst Norman Fosback in his book Stock Market Logic, is built around a specific idea about market psychology: days with rising volume tend to be driven by the "uninformed crowd" — retail and momentum-driven participants piling in and out based on news, hype, or price action itself. The PVI is designed to isolate exactly what happens to price on those specific days.

Its counterpart, the Negative Volume Index (NVI), does the opposite — it only updates on days when volume decreases, on the theory that quieter days are when "smart money" is more likely to be positioning itself without drawing a crowd.

Important: PVI Is Not a Contrarian Indicator

This is the detail that trips people up. Even though the PVI is meant to represent what the "not-so-smart money" is doing, it does not work as a contrarian signal — meaning you shouldn't assume "the crowd is buying, so I should sell." In practice, the PVI still tends to trend in the same direction as price. Because rising prices are typically accompanied by rising volume, the PVI usually trends upward over time, right alongside the broader market.

How the Positive Volume Index Is Calculated

The PVI only changes on days where volume rises. The logic works like this:

If today's volume is greater than yesterday's volume:

PVI(today) = PVI(yesterday) + [ (Close(today) − Close(yesterday)) / Close(yesterday) ] × PVI(yesterday)

If today's volume is less than or equal to yesterday's volume:

PVI(today) = PVI(yesterday)   (unchanged)

In plain terms: on a volume-increase day, the PVI moves by the same percentage that price moved. On any day volume doesn't increase, the indicator simply holds its value from the prior day. Over time, this produces a cumulative line that only reflects price behavior from the "high volume" subset of trading days.

You don't need to calculate this by hand — PVI (and NVI) are standard built-in indicators on most charting platforms, including TradingView, ThinkorSwim, and MetaTrader.

How Traders Use the PVI

1. Comparing PVI to its moving average

The most common application, based on Fosback's research covering data from 1941–1975, treats the relationship between the PVI and its own long-term (often one-year) moving average as the actual signal:

• PVI above its moving average → historically associated with bull market conditions.
• PVI below its moving average → historically associated with bear market conditions.

Fosback's research found the PVI to be a reasonably reliable read on both bull and bear conditions using this method — worth noting since the NVI, its counterpart, was found to be particularly strong specifically at identifying bull markets.

2. Using PVI and NVI together

Because PVI tracks high-volume ("crowd") days and NVI tracks low-volume ("smart money") days, many traders plot both indicators side by side to compare what each group appears to be doing over the same stretch of time — using agreement or divergence between the two as additional context on the strength or fragility of a trend.

3. Long-term trend context, not short-term timing

The PVI is built from cumulative, slow-moving data and is generally used for gauging the broader market environment (bull vs. bear) rather than for pinpointing short-term entries and exits.

Strengths and Limitations

Strengths:

• Grounded in decades of published market research (Fosback's 1941–1975 study) rather than a purely theoretical construct.
• Offers a distinct lens compared to price-only trend tools, since it filters specifically for high-volume trading days.
• Works well as a broad bull/bear market gauge when paired with its own moving average.

Limitations:

• It is not a standalone timing tool. The PVI is cumulative and slow-changing, making it unsuitable for short-term trade signals.
• It's not contrarian, despite the "uninformed crowd" framing — don't mistake it for a fade-the-crowd indicator; it still trends with price.
• Historical reliability doesn't guarantee future results. The research behind it covers a specific multi-decade period, and market structure, volume patterns, and participant behavior have changed significantly since then.
• Best used with its moving average and alongside NVI, rather than read in isolation.

Frequently Asked Questions

What's the difference between PVI and NVI? The PVI only updates on days when volume increases, representing what Fosback's theory calls the "uninformed crowd." The NVI only updates on days when volume decreases, representing what the theory calls "smart money." They're mirror-image indicators built from the same underlying formula, just applied to opposite volume conditions.

Is a rising PVI a bullish signal? Not by itself — a rising PVI simply means price rose on high-volume days. The more established signal is the relationship between PVI and its own moving average: PVI above its moving average has historically aligned with bull market conditions, and below it with bear market conditions.

Should I use PVI for day trading? It's not well suited to that. The PVI is a cumulative, slow-moving indicator designed to characterize the broader market environment over months or years, not to generate short-term entry and exit signals.

Final Thoughts

The Positive Volume Index offers a distinctive way of reading the market: instead of asking "which direction is price going," it asks "what happens to price specifically on the days when everyone piles in." It's not a crystal ball, and it's explicitly not a contrarian tool — but as a long-term gauge of bull and bear market conditions, especially when paired with its own moving average and read alongside the Negative Volume Index, it remains a respected piece of volume-based market analysis.

This article is for educational purposes only and is not investment advice. Trading involves risk, including the potential loss of principal.