Negative Volume Index is based on days when volume is down from the previous day. Positive Volume Index is based on days when volume is up on the previous day.Basically it is an index that focuses on days where the volume has significantly decreased from the previous day’s trading.
The Negative Volume Index was introduced by Norman Fosback and is often used in conjunction with Positive Volume Index to identify bull markets. The two indicators are based on the assumption that the smart money dominates trading on quiet days and that the uninformed crowd dominates trading on active days.
The two indicators assume that “smart” money is traded on quiet days (low volume) and that the crowd trades on very active days. Therefore, the negative volume index picks out days when the volume is lower than on the previous day, and the positive index picks out days with a higher volume.
Negative Volume Index is used together with the Positive Volume Index, it can identify bull markets. These indicators are created on the notion that smart money dominates trading on quiet days. From the other hand uninformed investors trade on active days.
The index tries to determine what smart investors are doing. It is believed that when volume is high, uninformed investors will sell. While on slow days, “shrewd investors” will quietly buy or sell the stock.