Volume Price Trend Indicator - VPT

For those technical analyst traders out there, the volume price trend (VPT) is one of many tools that can help predict the price of a security, both in direction and magnitude.

The VPT is designed off the basic principles of supply and demand. It captures this by starting with a cumulative volume line, which changes with additions or subtractions of the percent change in the price’s current trend and volume. The percentage captures the change in the relative supply and demand, while the volume sets the magnitude.

Like most technical trading analysis tools, VPT is best used in conjunction with other tools rather than on its own. For instance, it’s common for VPT to be used with a moving average indicator, of which there are many. Where the VPT and that moving average indicator cross may signal a trend reversal, prompting the trader to either buy while prices are low, or sell while prices are high. It can also be used in the opposite sense, when the VPT diverges from another indicator.