In the world of trading, various indicators offer insights into market dynamics. One such tool that combines both volume and price movement is the Volume Price Trend (VPT) indicator. This article aims to provide a deep dive into what VPT is, how it’s calculated, and how traders can use it to make more informed decisions.
What is Volume Price Trend (VPT)?
Volume Price Trend is a technical analysis indicators used to identify the relationship between the trading volume and the price of a security. It essentially combines price action and volume to confirm the strength of a price trend or warn of potential reversals. In simpler terms, VPT aims to measure the inertia behind a price trend, factoring in the volume of transactions.
How to Calculate VPT
The basic formula to calculate the Volume Price Trend is as follows:
Here’s a breakdown:
- Previous VPT: VPT value from the previous day
- Today’s Close: Closing price of the security today
- Yesterday’s Close: Closing price of the security yesterday
- Volume: Trading volume of the day
Assume a stock has a Previous VPT of 1000. The closing price yesterday was $50, and today it closed at $52. The volume for today was 200,000 shares. The VPT would be: