Cumulative Volume Index - Explained
What is a Cumulative Volume Index?
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Table of ContentsWhat is a Cumulative Volume Index?How is a Cumulative Volume Index Used?Academic Research for Cumulative Volume Index
What is a Cumulative Volume Index?
Cumulative volume index is a type of technical indicator on a stock chart which makes use of the advance and decline volume data (volume trends; the volume of rising stocks and the volume of falling stocks respectively) that are downloaded for the NYSE, NASDAQ, and AMEX by the Advancing-Declining-Unchanged volume. Cumulative volume index (short form; CVI) refers to the momentum index tat calculates the pattern of capital being pushed into and withdrawn from the stocks market by summing the difference between the speculated stock price and the decline in the stock price at the current total price.
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How is a Cumulative Volume Index Used?
The Cumulative Volume Index is quite similar to the Aggregated Volume Index, but varies due to specificity. The Average Aggregated Index is broad and highlights the direction of a market or an index like the NASDAQ or the Standard and Poor (S&P) 500 Index, and its name is similar to the balance indicator. The CVI, however, focuses particularly on the number of values as opposed to the volume in the specified market. CVI time intervals are best used over the price index to allows for proper explanation of its values. This should be particularly adhered to by investors, so that they don't make the mistake of trying to understand the real number as it rarely has a use in the market movement pattern. Just like other indicators, combination is key, and thus, traders wouldn't hesitate to mix this indicator with other technical indicators or analysis tools. When combined with other indicators, CVI can be used to identify trends and increase the chance of successful tradings. The cumulative index has a great effect on determining that capital is an index of entry and exit point. CVI trends also affect traders sentiments in the market, but the degree of momentum. In a case where the CVI trend is low, traders may feel that momentum is getting weaker, thus, making a chance for a possible reversal. Also, when CVI trend is high, traders often get to believe that momentum is getting stronger ad thus, a reversal may be far from possible and its time to up their investments. Traders also have the opportunity of searching for convergence and divergence between the market price and the cumulative volume index trend line. The CVI value doesn't showcase the highest and the lowest levels, thus possibly breeding a sign of a guaranteed solution to a problem at that point in the market.