<p>The <strong>Negative Volume Index (NVI)</strong> is a technical indicator used in trading to identify trends and potential reversals. It's based on the premise that volume should increase when a security is trending and decrease when it's not.</p>

<h2>How It Works</h2>

<p>The NVI is calculated by subtracting the previous day's volume from the current day's volume. If the current day's volume is less than the previous day's, the NVI will be positive, indicating a potential trend continuation. If the current day's volume is greater, the NVI will be negative, suggesting a potential trend reversal.</p>

<p>Here's the formula:</p>

<table>
<tbody>
<tr>
<td><strong>NVI</strong></td>
<td>=</td>
<td>Current Day's Volume - Previous Day's Volume</td>
</tr>
</tbody>
</table>

<p>To use the NVI effectively, traders often combine it with other indicators or chart patterns to confirm signals. For instance, a negative NVI reading combined with a bullish candlestick pattern could suggest a buy opportunity.</p>

<h2>Why It Matters for Traders</h2>

<p>The NVI can help traders in several ways:</p>

<ul>
<li><strong>Trend Confirmation</strong>: A consistently positive NVI during an uptrend or negative NVI during a downtrend can confirm the trend's strength.</li>
<li><strong>Potential Reversal Signals</strong>: Sudden changes in the NVI's direction can indicate a potential trend reversal, signaling a possible entry or exit point.</li>
<li><strong>Volume Validation</strong>: The NVI helps validate trends by ensuring they're supported by sufficient volume. Trends without adequate volume may be less reliable.</li>
</ul>

<h2>Example</h2>

<p>Consider a trader using MetaTrader 5 to analyze EUR/USD. The pair has been in an uptrend for several days, with the NVI consistently positive. Suddenly, the NVI turns negative, accompanied by a bearish engulfing candlestick pattern. This could signal a potential trend reversal, prompting the trader to close their long position or even consider a short position.</p>

<h2>Key Takeaways</h2>

<ul>
<li>The NVI measures the difference between the current day's volume and the previous day's volume.</li>
<li>Positive NVI readings suggest trend continuation, while negative readings suggest potential reversal.</li>
<li>The NVI is most effective when used in conjunction with other indicators or chart patterns.</li>
<li>Traders should consider the NVI alongside other factors, such as price action and market fundamentals.</li>
</ul>