Volume Price Trend Indicator
The volume price trend (VPT) indicator helps determine a security’s price direction and strength of price change. The indicator consists of a cumulative volume line that adds or subtracts a multiple of the percentage change in a share price’s trend and current volume, depending upon the security’s upward or downward movements.
Definition: The Volume Price Trend (VPT) indicator is a technical analysis tool used to determine the price trend and the strength of price changes of a security. It consists of a cumulative volume line that adjusts based on the percentage change in the security's price movement and current volume.
Origin: The concept of the Volume Price Trend indicator can be traced back to early 20th-century technical analysis theories. As technical analysis methods evolved, VPT became an important tool for investors to analyze market trends.
Categories and Characteristics: The VPT indicator has the following key characteristics:
- Cumulative: VPT is a cumulative indicator representing the cumulative change in volume.
- Directional: VPT increases or decreases based on the price's upward or downward movement.
- Sensitivity: VPT is highly sensitive to volume changes, reflecting the market's buying and selling pressure.
Specific Cases:
- Assume a stock's current price is $100, with a volume of 1,000 shares, and the previous day's VPT is 5,000. If the price rises to $105, the VPT will increase:
VPT = 5,000 + 1,000 * (105 - 100) / 100 = 5,500 - If the next day the price drops to $95, with a volume of 800 shares, the VPT will decrease:
VPT = 5,500 + 800 * (95 - 105) / 100 = 4,700
Common Questions:
- Q: How does VPT differ from OBV (On-Balance Volume)?
A: While both VPT and OBV use volume data, VPT takes into account the magnitude of price changes, whereas OBV only considers the direction of price changes. - Q: Is VPT applicable to all markets?
A: VPT is primarily used in the stock market but can also be applied to other markets with volume data, such as futures and forex markets.
