PVT Indicator: ALWAYS Know When Smart Money Enters/Exits The Market

Understanding the Price Volume Trend (PVT) Indicator

To become profitable with trading, it’s important to understand the dynamics of money entering and exiting the market, as well as the volume of transactions. Joseph Granville, a famous technical analyst, believed that volume was a critical component of market analysis. He created the Price Volume Trend (PVT) indicator, which combines both volume and price trends to reveal important information and potential trading opportunities.

How Does the PVT Indicator Work?

The PVT indicator measures the momentum of buying and selling pressure in the market. It shows when price-adjusted bullish volume outpaces price-adjusted bearish volume. By analyzing the PVT line, traders can determine whether there is buying or selling pressure in the market.

The PVT line is the main component of the indicator and represents the price-adjusted volume. If the PVT line is red and moving downward, it indicates selling pressure in the market. This suggests that the number of sell orders is increasing, and traders are willing to sell their shares at lower prices. Conversely, if the PVT line is green and moving upward, it indicates buying pressure in the market. This means there is a higher chance for a bullish move to occur, as the number of buy orders is increasing and moving to higher prices.

The PVT indicator also has a signal line, which makes it easier to identify bullish or bearish pressure. When the PVT line crosses above the signal line, it indicates upward momentum and buying pressure. Conversely, when the PVT line crosses below the signal line, it indicates downward momentum and selling pressure.

Using the PVT Indicator for Profitable Trading

There are several methods for using the PVT indicator to enter profitable positions. The most basic method is to look for the PVT line crossing above or below the signal line. When the PVT line crosses above the signal line, it indicates buying pressure and a potential bullish move. Conversely, when the PVT line crosses below the signal line, it indicates selling pressure and a potential bearish move.

Another method, used by more experienced traders, involves analyzing the divergence between the price and the PVT indicator. If the price is making lower lows while the PVT indicator is making higher lows, it suggests that the selling pressure is decreasing despite the falling price. This divergence indicates that the price may be oversold and due for a correction. Similarly, if the price is making higher highs while the PVT indicator is making lower highs, it suggests that the buying pressure is decreasing while the price is still rising. This divergence indicates that the price may be overbought and due for a bearish correction.

Combining the PVT Indicator with Other Indicators

To enhance the effectiveness of the PVT indicator, traders can combine it with other indicators. For example, using moving averages can help determine the overall trend. By only entering positions that align with the indication of the moving averages, traders can increase their chances of success.

Additionally, the relative volatility indicator can be used as a confirmation tool. It helps ensure that there is sufficient volume in the market to support the identified trend. By confirming the volume with the relative volatility indicator, traders can have more confidence in their trading decisions.

Entering Profitable Positions with the PVT Indicator

To enter profitable positions using the PVT indicator, traders can follow a systematic approach. First, they should analyze the overall trend using moving averages. If the price is trading above all the EMAs, it indicates a bullish trend, while trading below all the EMAs indicates a bearish trend.

Next, traders can look for buy or sell signals from the PVT indicator. When the PVT line crosses above the signal line, it indicates buying pressure and a potential bullish move. Conversely, when the PVT line crosses below the signal line, it indicates selling pressure and a potential bearish move.

Finally, traders can use the relative volatility indicator to confirm the volume in the market. If the bar on the relative volatility indicator is greater than both the filter and the moving average lines, it indicates sufficient volume for the identified trend.

By combining these indicators and following a systematic approach, traders can enter into profitable positions with higher accuracy.

Frequently Asked Questions (FAQs)

1. What is the Price Volume Trend (PVT) indicator?

The PVT indicator is a technical analysis tool that combines volume and price trends to provide insights into buying and selling pressure in the market. It helps traders identify potential trading opportunities and determine the momentum of price movements.

2. How does the PVT indicator work?

The PVT indicator measures the momentum of buying and selling pressure by comparing price-adjusted bullish volume with price-adjusted bearish volume. It uses a line graph to represent the PVT line, which can be red or green depending on the direction of the pressure.

3. How can the PVT indicator be used for profitable trading?

Traders can use the PVT indicator to identify buying or selling pressure in the market. By analyzing the PVT line and its relationship with the signal line, traders can enter into positions that align with the identified pressure. Additionally, combining the PVT indicator with other indicators, such as moving averages and the relative volatility indicator, can enhance the accuracy of trading decisions.

4. What are some strategies for using the PVT indicator?

There are several strategies for using the PVT indicator. One approach is to look for the PVT line crossing above or below the signal line as a buy or sell signal. Another strategy involves analyzing the divergence between the price and the PVT indicator to identify potential reversals. Additionally, combining the PVT indicator with other indicators, such as moving averages, can provide further confirmation for entering positions.

5. Is it necessary to backtest strategies before using the PVT indicator?

Yes, it is highly recommended to backtest strategies before utilizing them in live trading. Backtesting involves applying the strategy to historical market data to assess its performance and profitability. This helps traders understand the strengths and weaknesses of the strategy and make any necessary adjustments before risking real capital.