Introduction to the Price Volume Trend Indicator
Most momentum oscillators focus solely on price movements. Most oscillators have a formula which only uses price as a basis for its value. However, momentum technically has another element, which is volume. The Price Volume Trend Indicator is one of the few momentum oscillators which incorporate volume within its algorithm.
What is the Price Volume Trend Indicator?
The Price Volume Trend Indicator or PVT is a trend following oscillator type of indicator which incorporates volume. It is a momentum based oscillator which is used to measure money flow while including volume within its consideration of price movements.
The PVT Indicator is somewhat very similar to the On Balance Volume (OBV) Indicator as the OBV indicator also uses volume as a basis for its plotting of its oscillator line. The difference is that while the OBV calculates based on close prices, the PVT adjusts the close price based on the percentage change of price. This creates a smoother oscillator compared to the OBV.
This basic PVT oscillator plots a line which oscillates freely, unbound by a fixed range.
How the Price Volume Trend Indicator Works?
The Price Volume Trend Indicator has an algorithm which calculates for the difference between the Current Close and the Previous Close, then divides the difference by the Previous Close. It then multiplies the result with the Volume. It then adds the product to the Previous PVT value.
PVT = {[(Current Close – Previous Close) / Previous Close] x Volume} + Previous PVT
The resulting value is then plotted as a point on the PVT oscillator line.
How to use the Price Volume Trend Indicator for MT4
The Price Volume Trend Indicator has a single option within its indicator settings which slightly modifies the movements of its oscillator line.
“ExtPVTApppliedPrice” refers to the price point on the chart which would be used by the indicator to calculate for the PVT value. This modifies the use of the Close Price to any point on the bar, which could be the open, high, low, and close.
There are several ways to use the PVT oscillator.
The most basic would be to use the sudden spikes and drops on the PVT line as an indication of momentum direction. However, this can be a very subjective signal. As such, many traders would add a moving average on the PVT line to act as a signal line.
Another method would be to use the PVT oscillator to observe for potential reversal signals based on divergences.
Buy Trade Setup
When to Enter?
Open a buy order as soon as the PVT line crosses above its paired moving average signal line.
When to Exit?
Close the trade as soon as the PVT line crosses below its paired moving average signal line.
Sell Trade Setup
When to Enter?
Open a sell order as soon as the PVT line crosses below its paired moving average signal line.
When to Exit?
Close the trade as soon as the PVT line crosses above its paired moving average signal line.
Conclusion
The PVT line can be a very valuable information. However, as a standalone indicator, this momentum oscillator can sometimes be very confusing to use. As such, it is best to use this indicator as a part of larger trading strategy in confluence with other technical indications.
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