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Overview
The Trade Volume Index ("TVI") shows whether a security is being accumulated (purchased) or
distributed (sold).
The TVI is designed to be calculated using intraday "tick" price data. The TVI is based
on the premise that trades taking place at higher "asking" prices are buy transactions and
trades at lower "bid" prices are sell transactions.
Interpretation
The TVI is very similar to On Balance Volume. The OBV method
works well with daily prices, but it doesn't work as well with intraday tick prices. Tick
prices, especially stock prices, often display trades at the bid or ask price for extended
periods without changing. This creates a flat support or resistance level in the chart.
During these periods of unchanging prices, the TVI continues to accumulate this volume on
either the buy or sell side, depending on the last price change.
The TVI helps identify whether a security is being accumulated or distributed. When the
TVI is trending up, it shows that trades are taking place at the asking price as buyers
accumulate the security. When the TVI is trending down, it shows that trades are taking
place at the bid price as sellers distribute the security.
When prices create a flat resistance level and the TVI is rising, look for prices to
breakout to the upside. When prices create a flat support level and the TVI is falling,
look for prices to drop below the support level.
Example
The following chart shows IBM's tick prices
and TVI.
During the 45 minutes leading up to the point labeled "A," prices were locked in
a tight range between the bid price of 69 1/4 and the asking price of 69 3/8. During this
same period, the TVI was trending upward which showed the prices were slowly being
accumulated.
Calculation
The Trade Volume Index is calculated by adding each trade's volume to a cumulative total
when the price moves up by a specified amount, and subtracting the trade's volume when the
price moves down by a specified amount. The "specified" amount is called the "Minimum Tick
Value."
To calculate the TVI you must first determine if prices are being accumulated or
distributed:
Once you know the direction, you can then calculate the TVI:
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