Negative Volume Index (NVI)

The negative volume index records the percentage price change only on days when volume contracts. The hypothesis, which you should treat as a hypothesis, is that quieter days are when informed or longer-horizon trading shows itself, while noisy high-volume days are the crowd. The index then accumulates those quiet-day returns. A rising NVI says the stock has been rising on the days volume declined. Fosback compared NVI with its own one-year moving average as a broad bullish or bearish backdrop. That test was on market-level data of his era, not a license to trade every cross on a single stock.

Because NVI is flat whenever volume rises, a dramatic high-volume trend day does not move it at all. That is the design, and it is also why the line can look calm through a crash day that happened on huge volume. The information is specifically about the quiet bars. If you wanted the crash day, you wanted price, or the positive volume index.

Use NVI as a background study on a daily chart. A long rise in NVI says quiet sessions have had an upward bias. A break in that pattern, quiet sessions starting to close lower, is the change to notice. Do not use an intraday NVI on a one-minute chart. Volume "down from the prior minute" is not the phenomenon Dysart was describing.

Assuming a rising NVI proves smart money is buying. The formula cannot identify the trader. It identifies quiet up days. Also updating the index on equal volume. The standard rule updates only when volume is strictly lower.

One quiet day with a bad close, a holiday session, or a half day can kink the index. And the smart-money story is not a tested law. Treat NVI as a way to see the quiet sessions in isolation, then go and look at those sessions.