Trade Volume Index

Parameters:

• Source: The data source for the calculation.
  • Open Price: Uses the opening price of each period.
  • High Price: Uses the highest price of each period.
  • Low Price: Uses the lowest price of each period.
  • Close Price: Uses the closing price of each period.
  • Volume: Uses the trading volume of each period.
  • Weighted: A weighted price is typically calculated as (High + Low + Close + Close) / 4.
  • Typical: Calculated as (High + Low + Close) / 3.
  • Median: Calculated as (High + Low) / 2.
• Periods: This parameter controls the number of periods used to calculate the moving average.

Style:

• Customizable options for visual representation (line color, style, etc.)

The Trade Volume Index (TVI) was created as the measurement indicator in technical analysis to define the amount of money flowing in and out of an asset. Unlike other volume indicators that practically tally up the total volume of trades over a given period, the TVI differentiates between buying and selling pressure by analyzing price and volume movements. It makes a valuable tool for traders looking to understand the underlying demand and supply dynamics driving price changes.

How the Trade Volume Index Works: The TVI compares the current trade price to a baseline price, typically the price at the start of the period. It then adjusts the index up or down based on whether the current trade price is higher or lower than the previous one. If the price rises and the volume is significant, it indicates buying pressure. Conversely, if the price falls with substantial volume, it signals selling pressure.

The TVI calculation involves the following steps:

1. Initial Baseline Price: Set at the beginning of the period (often the opening price).
2. Price and Volume Analysis:
   • For each trade, compare the current price to the previous trade price.
   • Adjust the index upward if the price rises and the volume is substantial (indicating buying pressure).
   • Adjust the index downward if the price is falling and the volume is substantial (indicating selling pressure).

Key Aspects of the Trade Volume Index:

• Distinguishing Buy/Sell Volume: By considering whether prices are rising or falling, the TVI helps differentiate between volume associated with buying and selling.
• Flow of Money: The TVI provides a continuous measure of money flow into and out of a security, offering insights into the market sentiment and potential price movements.
• Threshold Sensitivity: The TVI is sensitive to minor price changes, which can help detect shifts in buying or selling pressure early on.

Application of the Trade Volume Index:

• Identifying Trends: Traders use the TVI to confirm trends. A rising TVI suggests strong buying interest and can confirm an uptrend, while a falling TVI indicates selling pressure, supporting a downtrend.
• Spotting Divergence: Divergence between the TVI and price can signal potential reversals. For example, if prices are making new highs but the TVI is not, it may indicate weakening buying pressure and a potential reversal.
• Entry and Exit Signals: The TVI can generate signals for entering or exiting trades. Traders might enter long positions when the TVI turns positive and exit when it turns negative.

Example Calculation:

1. Set the initial baseline price at the opening price of the period.

2. For each trade:

   • In case when the current trade price is higher than the previous trade price and the volume is significant, the TVI will be incremented.
   • In case when the current trade price is lower than the previous trade price and the volume is significant, the TVI will decrease.

Limitations:

• Sensitivity to Noise: The TVI can be overly sensitive to minor price fluctuations, which might lead to false signals.
• Lagging Nature: Like many indicators, the TVI is somewhat lagging because it reacts to price movements rather than predicting them.

Conclusion: The Trade Volume Index is a powerful tool for traders who want to delve deeper into the volume dynamics driving price movements. By distinguishing between buying and selling pressure, it offers insights that can enhance trend analysis and improve the timing of entry and exit points. However, traders should use the TVI with other indicators and analysis techniques to mitigate the risk of false signals and form a comprehensive trading strategy.