Relative vigor index: Relative Vigor Index RVI: Definition, Formula, Uses in Trading
Note that the indicator doesn’t offer exact levels for overbought and oversold areas, so traders need to figure this out themselves. It addition, it’s necessary to remember that oscillators can remain at extreme levels over a prolonged period of time. These are the main types of signals RVI traders seek in the market. Depending on the parameters set, RVI will signal traders when there are potential overbought or oversold conditions in the market. Usually, a reading closer to 0.4 will imply overbought conditions, whereas a reading close to -0.4 will imply oversold conditions.
In this image, we see that the two signals we need from this trading strategy come at once. When there is a bullish trend, continue holding the asset as long as the two lines are rising and vice versa. On the other hand, if the price is falling, continue shorting the asset as long as the two lines are declining. The first step for calculating the RVI is to identify the period to examine. Still, you can tweak this period to suit your trading strategy. These indicators are divided into leading and lagging indicators.
There are hundreds of technical indicators that are found in most trading platforms like the MT4, PPro8, and TradingView. The RVI indicator fluctuates around the center line and it travels from above to below zero, and vice versa. As you can see from the photo below, the values are rising as the price trades in a bullish environment and vice versa. The indicator is classified as a centered oscillator, since it oscillates around the center line rather than a banded oscillator.
Trading Strategies using the RVI:
Still, it can be used well in the other markets such as forex, stocks, and indices. The average true range is a market volatility indicator used in technical analysis. In down trends potential short sale opportunities occur when the RVI crosses below its signal line.
He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. In up trends potential buy opportunities occur when the RVI crosses above its signal line. Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. Harness past market data to forecast price direction and anticipate market moves. Relative Vigor Index is a technical indicator used to establish the level of energy, or vigor within the current market.
This is why you need to be very careful and use the indicator well and in combination with other indicators. By the way, the first step is to look at a chart visually and seeing how it is trending. You should use the RVI when the market is trending, this will help you get the real signal. After applying the RVI, you need to look closely at when the two lines intersect. After this, you need to identify the Open, High, Low, and Close values for the current bar. As with most indicators, the RVI was created with the commodities market in mind.
The Relative Vigor Index is a technical indicator that can be used to trade all types of assets like currencies and commodities. However, the indicator has some limitations such as sending the wrong signals and being relatively difficult to calculate. Another relatively simple way of using the RVI indicator is to trade divergences. This refers to a situation where the price of an asset is rising while that of the indicator is falling. Technical analysis is the process of using tools that have been developed using mathematical calculations to forecast the direction of an asset.
The RVI is interpreted in the same way as many other oscillators, such as moving average convergence-divergence or the relative strength index . As noted earlier, the RVI indicator interacts with the signal line, creating different types of signals. For instance, a trading signal is generated when the RVI moves above the signal line. This situation is called a bullish crossover and it indicates that the price action is likely to start moving upwards. The bearish crossover is the opposite of the bullish crossover i.e. the RVI crosses below the signal line. The RVI indicator is displayed on a price chart below the prices and consists of two lines.
Using RVI to trade divergences
However, the main challenge for this is that divergences take a substantial amount of time to form. Finding the open and closing prices for currencies is usually relatively difficult because the forex market is usually open 24 hours for five days. Getting the data for stocks is easy because there are actual opening and closing prices every day. Traders use the indicator to identify when the price of an asset is oversold or overbought. Overbought levels are used to signal opportunities to short or sell while oversold levels are used to signal opportunities to buy. The Relative Strength Index is a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions.
Secondly, the price action creates a series of consecutive lower lows, a situation which is not confirmed by the RVI, which starting with a crossover continues to move higher. As we noted earlier, this situation is called a bullish divergence and it signals that the price action may start following the RVI higher soon. There are many different trading strategies based on the RVI indicator, as it is the case with the RSI and other oscillators.
Relative Vigor Index: Trading Strategies for the RVI Indicator
Moving averages are known to smooth out price action in trending markets. However, when using two moving averages, a trend reversal can be confirmed when the faster-moving average crosses the slower one upwards or downwards, depending on the preceding trend. This can be a confirmation that a new trend has formed after an earlier signal was delivered by the RVI. If the market is flat, look for the RVI to exit the overbought or oversold areas for a signal to sell/buy.
When considering which stocks to buy or sell, you should use the approach that you’re most comfortable with. The Slow Stochastic Oscillator is a momentum indicator that shows the location of the close relative to the high-low range over a set number of periods. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.
Divergence between the RVI and the price action may signal a change in trend. The Relative Vigor Index is an oscillator based on the concept that prices tend to close higher than they open in up trends and close lower than they open in down trends. Basically, it is an oscillator that is in phase with the cycle of the underlying’s price. The Relative Vigor Index is an indicator that calculates the power behind price movements.
We’re also a community of traders that support each other on our daily trading journey. When the market is up , the closing price is generally of a higher level than the opening price of the market, with the opposite being true for a down market. To this point, while the MACD is not an oscillator, it stifles the effectiveness of the RVI indicator strategy. So, by the time the MACD provides a trade signal, the buying opportunity is gone. In the first setup, we hope to take a long position once the RSI registers an oversold condition and the RVI has a bullish cross. We go long at 3 pm on the 7th and make $1.20 per share by the next trading day.
– Relative Vigor Index and Two Moving Averages
Due to the risk of false signals, we will now cover 5-day RVI indicator trading strategies. As shown on the chart above, something happens when the RVI and signal line of the RVI indicator make a crossover. The red arrows show how the pair moves upwards when the two indicators cross over. The blue lines, instead, shows how the price moves lower when the two lines make a crossover. All you need to do is to enter the period and change the colours. The default period in most platforms is 10 while the default colors are red and green.
Click the ‘Open account’button on our website and proceed to the Personal Area. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading. If a new price high is higher than the previous one, while the new RVI high is lower than the previous one , look for the RVI to cross the signal line to the downside and then sell.
RVI Strategies with a Complimentary Indicator
After receiving a trade signal from the relative vigor index, you only enter a new position after a cross of the two SMAs in the direction of your desired position. Conversely, you exit your position once there is an SMA cross, which goes in the opposite direction of your trade. Therefore, we go long the moment the green line of the relative vigor index tool breaks the red line signaling a new bullish trend. After we go long, we get a price increase of 50 cents, which equals about 4% of the total price per share. Like every other indicator, the RVI can produce false signals. Therefore, I strongly suggest you combine the relative vigor index with additional trading tools to identify head fakes.