Introduction to Projected Volume at Time (PVT)
Projected Volume at Time (PVT) is an advanced trading indicator used by traders to predict the final trading volume by the end of a trading session. This projection helps traders anticipate market moves and plan their strategies accordingly. By estimating the end-of-day volume early in the session, traders can identify potential trading opportunities, especially when combined with price action and other technical indicators.
Understanding Projected Volume at Time (PVT)
PVT works by taking the current trading volume at a specific time during the trading day and extrapolating it to estimate what the final volume will be at the close of the market. The calculation often involves considering the time remaining in the session and the pace at which trading volumes are accumulating. This tool is particularly useful in spotting unusual volume spikes, which may indicate strong market sentiment or significant institutional activity.
Key Trading Strategies Using Projected Volume at Time (PVT)
1. PVT and Price Breakouts in Volatile Markets
Strategy Overview: In volatile markets, price breakouts from key support or resistance levels are often accompanied by a significant increase in volume. By using PVT, traders can predict whether the volume will likely support the breakout, making the move more reliable.
How to Apply:
- Identify Key Levels: Look for strong support and resistance levels on the price chart.
- Monitor PVT: As the price approaches these levels, monitor PVT to see if the projected volume is higher than average.
- Entry Point: If the price breaks through the level with a high PVT, enter a trade in the direction of the breakout.
- Exit Strategy: Place a stop-loss just below the breakout level (for long trades) or above it (for short trades) and set a target based on the next significant price level.
Example in Volatile Market: Suppose a stock is trading near a key resistance level at $50 in a highly volatile market. As it nears this level, the PVT indicates that the projected end-of-day volume will be 50% higher than usual. The trader anticipates that this volume spike will support a breakout above $50, and they enter a long position. As the breakout occurs, the stock moves to $55, allowing the trader to take profits.
2. PVT and Reversals in Bull Markets
Strategy Overview: In a bull market, prices often climb steadily with moderate volume. However, a sudden increase in PVT, especially when the price is overextended, can signal a potential reversal.
How to Apply:
- Identify Overextended Price Levels: Use indicators like RSI or Bollinger Bands to identify when a stock is overbought.
- Monitor PVT for Spikes: If PVT suddenly projects a much higher-than-normal volume while the stock is at an overbought level, prepare for a potential reversal.
- Entry Point: Enter a short position if the price starts to reverse with high PVT.
- Exit Strategy: Set a stop-loss above the recent high and target a previous support level for taking profits.
Example in Bull Market: A stock has been in a strong uptrend, reaching $100. The RSI shows it is overbought, and the PVT projects an unusually high volume. The trader anticipates a reversal and enters a short position at $100. As expected, the stock reverses to $90, where the trader closes the position for a profit.
3. PVT and Continuation Patterns in Bear Markets
Strategy Overview: In bear markets, prices often form continuation patterns like flags or pennants. High PVT can confirm the continuation of the downtrend after the pattern completes.
How to Apply:
- Identify Continuation Patterns: Look for bearish continuation patterns, such as bear flags or pennants, during a downtrend.
- Monitor PVT During Pattern Formation: As the pattern forms, check if PVT is predicting a higher-than-normal volume, indicating strong selling pressure.
- Entry Point: Enter a short position when the price breaks down from the pattern with high PVT.
- Exit Strategy: Place a stop-loss above the pattern and set a target based on the measured move of the pattern.
Example in Bear Market: A stock is in a downtrend and forms a bear flag at $60. The PVT projects high volume, indicating that sellers are likely to push the price lower. The trader enters a short position when the price breaks below $58. The stock continues its downtrend to $50, allowing the trader to take profits.
4. PVT and Consolidation Phases
Strategy Overview: During consolidation phases, trading volumes are typically lower. A sudden increase in PVT during consolidation can signal an impending breakout.
How to Apply:
- Identify Consolidation Areas: Use trendlines to mark the consolidation range on the chart.
- Monitor PVT for Sudden Increases: If PVT suddenly projects a much higher volume during the consolidation, prepare for a potential breakout.
- Entry Point: Enter a trade in the direction of the breakout when the price moves out of the consolidation range with high PVT.
- Exit Strategy: Set a stop-loss within the consolidation range and target the next significant price level.
Example in Consolidation Phase: A stock is trading in a tight range between $40 and $45. The PVT projects high volume, signaling a potential breakout. The trader enters a long position when the stock breaks above $45. The stock rallies to $50, where the trader exits with a profit.
5. PVT and Divergences
Strategy Overview: Divergences between PVT and price can indicate potential trend reversals or continuations. For example, if the price is making higher highs but PVT is projecting lower volumes, it might signal a weakening trend.
How to Apply:
- Identify Divergences: Look for instances where the price and PVT are moving in opposite directions.
- Confirm with Other Indicators: Use other indicators like MACD or RSI to confirm the divergence.
- Entry Point: Enter a trade in the direction of the expected reversal if confirmed by other indicators.
- Exit Strategy: Set a stop-loss based on recent price action and target the next support or resistance level.
Example in Various Market Conditions: In a bull market, a stock makes a new high at $120, but the PVT shows a declining volume projection. The trader identifies this divergence as a potential reversal signal, enters a short position, and the stock drops to $110, providing a profitable exit.
Conclusion
Projected Volume at Time (PVT) is a powerful tool for traders, offering insights into potential market moves based on volume projections. Whether trading in volatile markets, bull or bear markets, or during consolidation phases, PVT can enhance a trader’s ability to predict and act on significant price movements. By integrating PVT with other technical analysis tools, traders can develop robust strategies tailored to various market conditions, increasing their chances of success in the markets.