Volume Price Trend Indicator (VPT)

Volume Price Trend (VPT) Indicator

The Volume Price Trend (VPT) indicator is a cumulative momentum tool that combines price change and trading volume to show the strength behind a security’s price movement. It helps traders assess whether price moves are being supported by volume (demand) or opposed by it (supply).

How VPT is calculated

VPT accumulates volume adjusted by the percentage change in price from one period to the next:

VPT_t = VPT_{t-1} + V_t × ((P_t − P_{t-1}) / P_{t-1})

Where:
* V_t = volume during period t
* P_t, P_{t-1} = closing prices for period t and t−1

If price rises, a portion of that period’s volume is added to the VPT line; if price falls, a portion is subtracted. The result is a running total that reflects the volume-weighted price trend.

Interpretation

• Rising VPT: volume supports upward price movement — bullish confirmation.
• Falling VPT: volume supports downward price movement — bearish confirmation.
• Flat or diverging VPT: suggests weak conviction behind price moves or potential reversal.

VPT is similar to On-Balance Volume (OBV), but weights volume by the magnitude of price change rather than adding or subtracting the full period volume.

Common trading uses and signals

Signal-line crossovers
* Apply a moving average to the VPT as a signal line.
* Typical rule: buy when VPT crosses above its signal line; sell when it falls below.

Confirming trends
* Use VPT alongside price moving averages (e.g., 20-day vs. 50-day) and the Average Directional Index (ADX).
– Example buy condition: 20-day MA > 50-day MA, VPT rising (above its signal line), and ADX > 25 (indicating a trending market).
– Example sell condition: 20-day MA < 50-day MA, VPT falling, and ADX < 25 (or trending down).

Divergence
* Bullish divergence: price makes a lower low while VPT makes a higher low — potential buy signal.
Bearish divergence: price makes a higher high while VPT makes a lower high — potential sell signal.
Use swing-based stop-losses (e.g., beyond the recent swing high for shorts or below the recent swing low for longs) to manage risk.

Practical considerations

• VPT is most useful in trending markets. It can give false signals during choppy or sideways price action.
• Quality of volume data matters — ensure you use reliable exchange volume or accurate aggregated volume feeds.
• Combine VPT with other tools (price patterns, moving averages, ADX, support/resistance) rather than relying on it alone.
• Most charting platforms include VPT as a built-in indicator.

Key takeaways

• VPT quantifies the volume behind price changes by adjusting volume with the percentage price move and accumulating that value.
• Rising VPT confirms bullish price strength; falling VPT confirms bearish strength.
• Use signal-line crossovers, trend confirmations (moving averages and ADX), and divergence analysis for trade signals.
• Always apply risk management (stop-losses) and confirm VPT signals with other indicators.