What is RVI indicator, the instructions of RVI and how to use the RVI indicator, the calculation of RVI indicator and the RVI indicator main parameters
The Relative Vigor Index (RVI) calculation is based on the idea that in a rising market the closing price is usually higher than the opening price, and in a bearish market the closing price is usually below the opening price.
The main point of Relative Vigor Index Technical Indicator (RVI) is that on the bull market the closing price is, as a rule, higher, than the opening price. It is the other way round on the bear market. So the idea behind Relative Vigor Index is that the vigor, or energy, of the move is thus established by where the prices end up at the close. To normalize the index to the daily trading range, divide the change of price by the maximum range of prices for the day. To make a more smooth calculation, one uses Simple Moving Average. 10 is the best period. To avoid probable ambiguity one needs to construct a signal line, which is a 4-period symmetrically weighted moving average of Relative Vigor Index values. The concurrence of lines serves as a signal to buy or to sell.
RVI = (CLOSE-OPEN)/(HIGH-LOW)
- OPEN — is the opening price;
- HIGH — is the maximum price;
- LOW — is the minimum price;
- CLOSE — is the closing price.
The Relative Vigor Index indicator is composed of two fluctuating curves – the “Green” line, which is the smoother RVI values, and the “Red” signal line. The Relative Vigor Index oscillator is viewed as a “leading” indicator, in that its signals foretell that a change in trend is imminent, especially when lines cross into extreme regions or when values diverge from current pricing behavior. The weakness in the indicator is timing and that it often gives counter-intuitive values that confuse rather than assist traders. Using an additional indicator may reduce the propensity for false signals.
- Bullish divergence / bearish convergence – the main signal pointing to the weakness of the current trend;
- A good moment to open a sell / buy position is the crossing of the RVI line by the signal line from above/below once the bullish divergence / bearish convergence has appeared on the chart;
- In a flat market an exit from the overbought / oversold area is a signal to sell / buy.
- Main: Main line
- Signal : Signal line
- Period: Number of periods for calculation, default is 10