Forex trading is a complex market with a lot of jargon and technical terms. One of these terms is PVT, which stands for Price Volume Trend. PVT is a technical analysis indicator that helps traders identify the strength of a trend and its potential reversal. In this article, we will explain what PVT is, how it works, and how traders can use it in their forex trading strategies.
What is PVT in Forex?
PVT is a technical analysis indicator that measures the relationship between price and volume. It was developed by technical analyst and author, Paul Dysart, in the 1980s. The PVT indicator is based on the principle that the volume precedes the price movements in the market.
The PVT indicator calculates the cumulative sum of the daily percentage change in the price multiplied by the volume. The resulting value represents the strength of the trend. If the PVT line is moving up, it indicates that the buying pressure is increasing, and the trend is getting stronger. Conversely, if the PVT line is moving down, it indicates that the selling pressure is increasing, and the trend is getting weaker.
How does PVT work?
The PVT indicator is calculated using the following formula:
PVT = [(Current Close – Previous Close) / Previous Close] x Volume + Previous PVT
The PVT formula calculates the percentage change in the price between the current close and the previous close. It then multiplies this percentage change by the volume traded during the current period. The result is added to the previous PVT value to get the current PVT value.
The PVT indicator is plotted as a line chart that moves above and below the zero line. When the PVT line is above the zero line, it indicates that the trend is bullish. When the PVT line is below the zero line, it indicates that the trend is bearish.
Traders can use the PVT indicator to confirm the strength of a trend. If the PVT line is moving in the same direction as the price trend, it indicates that the trend is strong and likely to continue. If the PVT line is moving in the opposite direction of the price trend, it indicates that the trend is weak and may be reversing.
How to use PVT in Forex trading?
Traders can use the PVT indicator in several ways to improve their forex trading strategies. Here are some of the ways traders can use PVT in their trading:
1. Confirming trend direction: Traders can use the PVT indicator to confirm the direction of the trend. If the PVT line is moving up, it confirms a bullish trend, and if it is moving down, it confirms a bearish trend.
2. Identifying trend reversal: Traders can use the PVT indicator to identify potential trend reversals. If the PVT line starts moving in the opposite direction of the price trend, it indicates that the trend may be reversing.
3. Divergence trading: Traders can use the PVT indicator to identify divergences between the PVT line and the price trend. If the PVT line is moving in the opposite direction of the price trend, it indicates a divergence. Divergences can be a powerful signal of a potential trend reversal.
4. Volume analysis: Traders can use the PVT indicator to analyze the volume traded during a specific period. If the PVT line is moving up, it indicates that the volume is increasing, and traders can use this to identify potential breakouts.
Conclusion:
In conclusion, PVT is a technical analysis indicator that measures the relationship between price and volume. Traders can use the PVT indicator to confirm the strength of a trend, identify potential trend reversals, analyze volume, and identify divergences. PVT is a powerful tool that can help traders improve their forex trading strategies and make more informed trading decisions.
