Cumulative Volume Index (CVI) Explained : Price Analyses

Cumulative Volume Index (CVI) Explained

The Cumulative Volume Index (CVI) is a momentum indicator that shows the amount of money moving in and out of an index or security. The CVI also shows the market breadth and the direction of movement. When the CVI line moves upwards, the amount of money moving into the security is increasing, while when the CVI line moves down, the amount of money is decreasing.

Cumulative Volume Index (CVI)

Interpreting the Cumulative Volume Index (CVI)

The most common use of the CVI is to visualize if money is moving in or out of a given index or security. As volume and momentum typically leads price, if the amount of money is increasing, then this could foreshadow an overall increase in prices; the inverse is also true before and during downturns in the market.

The other way to use the CVI is for spotting potential divergences and convergences. A positive convergence will occur when prices are moving upwards along with the CVI, while a negative divergence will occur when prices are moving up but the CVI is trending downwards.

Divergences, in particular, are susceptible to corrections and pullbacks. This occurs when prices naturally revert back its mean after a period of moving out of step with volume.

Combining the Cumulative Volume Index (CVI) with other indicators

The CVI is a useful tool for seeing the money flow of an index or security, but it should also be paired with other indicators to get the full picture of the security’s health. For example, one could use the CVI in conjunction with spotting a trendline breakout to the upside. If the CVI converges with the breakout, then this would give it more weight and a stronger buy signal than a trendline breakout by itself.

Alternatively, the CVI can also be used for validating other events such as moving average crossovers and one-bar patterns such as evening and morning stars.

Matthew North

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