Quantitative Strategy of Negative Volume Index Reversal

Overview

The name of this strategy is Negative Volume Index Reversal Strategy. This strategy uses Negative Volume Index (NVI) and its moving average to construct long and short signals and make reversal trades when conditions are met. It belongs to the reversal strategy category.

Strategy Principle

The core indicator of the Negative Volume Index reversal strategy is Negative Volume Index (NVI). The calculation formula of NVI is:

If today’s volume < previous day’s volume: NVI = previous day’s NVI + today’s price change rate

If today’s volume >= previous day’s volume: NVI = previous day’s NVI

That is to say, NVI is only updated on the day when the trading volume shrinks, and the trend of the price is reflected through the addition and subtraction of the price change rate. The logic of constructing long and short signals with NVI and its moving average is:

• When NVI is above its N-day moving average, go long.

• When NVI is below its N-day moving average, go short.

So it makes reversal trades when the volume shrinks.

Advantages of the Strategy

The main advantages of the Negative Volume Index reversal strategy are:

1. Using volume signals can find reversal points and has certain timing advantages.

2. The strategy logic is simple, easy to understand and implement.

3. Parameters can be optimized to adapt to different market environments.

Risks of the Strategy

The Negative Volume Index reversal strategy also has some risks:

1. The accuracy of volume signals cannot be guaranteed, and there is a certain probability of erroneous trades.

2. Improper parameter settings may lead to over-frequent trading or unclear signals.

3. Ensure reliable data sources to avoid risks from erroneous volume data.

These risks can be reduced through parameter optimization, stop loss strategies, etc.

Optimization Directions

The Negative Volume Index reversal strategy can be optimized in the following aspects:

1. Optimize the moving average parameters to find parameters that better describe market characteristics.

2. Add other indicators for filtering to avoid unnecessary erroneous trades. For example, add larger timeframe trend judgments.

3. Combine with strong stop loss methods to limit single loss.

4. Test differences in parameter settings for different varieties, and set adaptive parameters.

Conclusion

The Negative Volume Index reversal strategy makes reversal operations when the trading volume shrinks, aiming to capture potential trend reversal points. This strategy has the advantages of simplicity and easy understanding, and also has certain risks of erroneous trades. The stability and profitability of the strategy can be improved through parameter optimization, adding auxiliary indicators, etc. In general, the Negative Volume Index reversal strategy has good prospects for development and application.