HOLLOW POINT TRADING
What Is Volume Price Trend (VPT)?
The Volume Price Trend (VPT) indicator combines price action and volume to confirm trend strength and identify potential reversals. Unlike On-Balance Volume (OBV), which adds or subtracts the entire day's volume based on a close, VPT adjusts the volume added based on the *percentage* change in price.
This makes VPT a more nuanced "money flow" indicator that gives more weight to large price moves on high volume.
Core Concept
- Confirmation: VPT moves in the same direction as price to confirm a trend
- Divergence: Discrepancies between price and VPT suggest a reversal
- Relative Strength: Shows how much "buying power" is behind a move
The Calculation
VPT is a cumulative total calculated using the percentage change in price multiplied by the current volume.
How to Trade VPT
📈 Bullish Confirmation
Price makes a new high and VPT also makes a new high. This suggests the uptrend is healthy and backed by increasing volume weight.
📉 Bearish Confirmation
Price makes a new low and VPT also makes a new low. This suggests the downtrend is strong and selling pressure is high.
Spotting Divergence
If price makes a new high but VPT fails to follow (makes a lower high), it represents Negative Divergence. This signals that the price move is "hollow" and a reversal may be coming.
VPT vs. On-Balance Volume (OBV)
| Feature | On-Balance Volume | Volume Price Trend |
|---|---|---|
| Volume Weighting | All or Nothing | Percentage-Based |
| Sensitivity | High | Moderate/Adjusted |
| Best Use | Simple Accumulation | Nuanced Trend Strength |
Key Takeaways
Volume Price Trend is one of the most effective tools for distinguishing between a strong trend and a weakening one. By incorporating the magnitude of price changes into the volume calculation, VPT reveals the "true" commitment of market participants. Always look for VPT to confirm price highs and lows.