Negative Volume Index (NVI)

The Negative Volume Index (NVI) is a technical analysis indicator used in the cryptocurrency market to assess the trend direction based on changes in trading volume. It was developed by Paul Dysart in the 1930s and later adapted for cryptocurrency trading.

The NVI calculates a cumulative value that increases when the price decreases on days with lower trading volume and decreases when the price increases on days with higher trading volume. This indicates that there is less interest from investors when the price falls and more interest when the price rises.

Here's how it works:

1. Calculation of NVI: NVI(t) = NVI(t-1) + (Price Change Percentage * Volume Change Percentage)
2. Interpretation: When NVI is rising, it suggests that there is a lack of interest in the market during price declines, indicating a bearish trend. Conversely, when NVI is falling, it indicates increasing interest during price rises, suggesting a bullish trend.
3. Example: Let's say the price of a cryptocurrency decreases by 2% on a day with a 10% decrease in trading volume. The NVI for that day would increase because the price fell with decreased volume, indicating bearish sentiment.
4. Case Study: Suppose Bitcoin's price declines by 3% on a day with a 15% decrease in trading volume. This scenario would likely lead to a rise in NVI, signaling a continuation of the bearish trend.

In summary, the Negative Volume Index in cryptocurrency trading helps traders identify trends by analyzing changes in trading volume relative to price movements. Rising NVI suggests bearish sentiment, while falling NVI indicates bullish sentiment.