Direct Answer
The Negative Volume Index (NVI) changes only on bars where volume fell from the prior bar, and then by the percentage price change. It assumes informed participants act on quiet, low-volume days. It is typically compared with a long moving average of itself, with NVI above that average read as a more favorable backdrop.
Negative Volume Index: Formula, Meaning, Signals, Examples and How to Use It
How Is Negative Volume Index Calculated?
The Negative Volume Index (NVI) changes only on bars where volume fell from the prior bar, and then by the percentage price change. It assumes informed participants act on quiet, low-volume days.
Formula: If Volume < prior Volume: NVI = prior NVI x (1 + (Close - prior Close) / prior Close); otherwise NVI = prior NVI
Inputs:
- Bar closes
- Bar volumes
- Starting index value (commonly 1000 or 100)
Worked example. On a bar with lower volume than the day before, a close of 50.50 from 50.00 moves a prior NVI of 1,000 to 1010.00. The inputs are illustrative numbers, not market data.
Reading it. It is typically compared with a long moving average of itself, with NVI above that average read as a more favorable backdrop. Because only falling-volume bars move it, it describes price behavior on quiet days.
Limits. The idea that low-volume days belong to informed traders is an assumption. The value depends on the starting level and the series start date, so levels are not comparable across charts, and the index can sit unchanged during long runs of rising volume.
What is Negative Volume Index?
The Negative Volume Index (NVI) changes only on bars where volume fell from the prior bar, and then by the percentage price change. It assumes informed participants act on quiet, low-volume days.
How to use Negative Volume Index
It is typically compared with a long moving average of itself, with NVI above that average read as a more favorable backdrop. Because only falling-volume bars move it, it describes price behavior on quiet days. A reading alone is never a buy or sell signal; it needs context from price structure, volume, volatility and the broader market regime.
Strengths
- Updating only when volume falls isolates price changes that happen on quiet bars, a different slice from the positive index.
- The same compounding as PVI means the two indexes can be compared side by side on one scale.
- Reproducible when the formula and data convention are fixed.
Weaknesses and limitations
- A single large-volume day makes the next bar likely to be classified as lower volume, so one spike can start a run of updates.
- All price changes on rising-volume bars are ignored, so a large part of the series' price movement never enters the index.
- Correlated indicators can create false confidence by repeating the same underlying information.
Editorial and risk note
This page is educational content, not individualized investment advice. It should not imply guaranteed prediction, accuracy or outperformance.
Frequently Asked Questions
Is Negative Volume Index a buy or sell signal?
No. It is typically compared with a long moving average of itself, with NVI above that average read as a more favorable backdrop. The idea that low-volume days belong to informed traders is an assumption. A trade built on it still needs a trigger, an invalidation rule, a position size and realistic execution assumptions.
What is the best setting for Negative Volume Index?
Negative Volume Index takes these inputs: bar closes; bar volumes; starting index value (commonly 1000 or 100). There is no universal best setting for the tunable ones, so test them across instruments, regimes and out-of-sample periods and favor stable parameter regions over one historical winner.
Can Negative Volume Index be used by itself?
The idea that low-volume days belong to informed traders is an assumption. The value depends on the starting level and the series start date, so levels are not comparable across charts, and the index can sit unchanged during long runs of rising volume. For that reason it is read next to measures of direction, participation, valuation, liquidity and risk, not alone.
Does Negative Volume Index work on every timeframe?
The calculation can be run on any bar size, but behavior is not portable: a reading on a five-minute chart describes a very different market window from the same reading on a daily chart. Validate the exact timeframe before relying on it.
Why does Negative Volume Index give false signals?
A single large-volume day makes the next bar likely to be classified as lower volume, so one spike can start a run of updates. All price changes on rising-volume bars are ignored, so a large part of the series' price movement never enters the index. Lag, noise and regime changes add to this, because market participants react to new information after the reading is calculated.
How should Negative Volume Index be backtested?
Rebuild Negative Volume Index from bar closes using point-in-time data, write the rules before testing, include delisted securities where relevant, model realistic fills and costs, reserve a validation sample and compare with a simpler baseline.