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Advancing volume refers to the total volume traded for securities that advanced or closed above their opening price. Declining volume refers to the total volume traded for securities that declined or closed below their opening price.
The Cumulative Volume Index, CVI, determines whether money flows into or out of the stock market, and thus can be used to confirm the direction of the market. The CVI is calculated by subtracting the volume of declining stocks from the volume of advancing stocks and then adding that result to the previous day's CVI value. The CVI composite uses the volume from three U.S. exchanges (New York Stock Exchange, NASDAQ and American Stock Exchange) to calculate the advancing and declining volume.
The higher the volume associated with advancing stocks is compared to the volume of declining stocks, the higher the Cumulative Volume Index value (good news, money is flowing into the market). The lower the volume associated with declining stocks is compared to the volume of advancing stocks, the lower the Cumulative Volume Index value (bad news, money is flowing out of the market).
The direction of the CVI can be used to determine the direction of the market. You can also use the divergence between the CVI and an index prices (S&P 500 index or a broader index for example) as a way to detect potential corrections. An increase in the CVI and a decrease in the market index may indicate that a correction is near and that a reversal may occur.
As with any technical analysis indicator, you can use to CVI chart to draw support, resistance and trendlines.
Note: Because the actual value of the CVI is not important, I have divided the CVI composite numbers by 10000.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
