Relative Vigor Index

Introduction to Relative Vigor Index

In 1993 Donald Dorsey developed the RVI indicator. Then, in 1995, the author updated it into the current version. RVI belongs to the broad Oscillator group of indicators. It helps traders determine market conditions that are overbought and oversold.

What is Relative Vigor Index?

The relative vigor index is an indicator of technical analysis. It measures the intensity of a trend by comparing the closing price of a stock to its trading range and smoothing the effects. It is based on the tendency of prices closing higher than they open up in uptrends and closing lower than in downtrends they open
 Most oscillators focus on high and low (extreme) prices over a period of time. But the RVI pays more attention to the closing price compared to the opening price.

How do you Calculate Relative Vigor Index?

1. Choose an examination period N.
 
2. Identify the latest bar values open, big, low, and close.
 
3. Identify the values high, open, low, and close before the current bar for the look back times.
 
4. Calculate the simple moving averages over the N period for NUMERATOR and DENOMINATOR.
 
5. Divide value NUMERATOR from value DENOMINATOR. 6. Place the effect on a graph in the equation of the signal line and map it out.

Types of Relative Vigor Index Trade Signals

1. Overbought/Oversold market: A low demand suggests an oversold market and an over-bought one shows a high-priced. Crossover – Signals of entry and departure are caused as the short moving average reaches the long moving average.
 
2. Divergence: Divergences between price action and RVI often lead to moves towards counter-trend.
 
3. Chart Patterns: The RVI may plot formations such as double bottoms, double tops, heads, and shoulders, etc.

How do You Use Relative Vigor Index?

A forex trader could examine potential trend changes with the RVI indicator. Traders can search for the differences with the recent price. Then identify specific exit and entry points with traditional trend lines and chart outlines. The two most popular signals about trading include:
 
1. RVI Divergences: Divergences about the price and RVI indicator suggests that the trend in the bearing of the RVI trend will change in the near term. So, if a stock price rises and the RVI indicator drops, it predicts that the stock will reverse over the near term.
 
2. RVI Crossovers: Like many of the other oscillators, RVI has an indication mark which is often calculated using price inputs. A crossover that goes over the indication line is a bullish indication while the bearish indicator is a crossover that is below the signal line. Such crossovers are meant to be leading signs of the course of future rates.

What are the Limitations When Using Relative Vigor Index?

The relative vigor index functions better in trend markets while giving range bound markets false signals. Set longer-term periods to improve results. Decrease the effect of whipsaws and short-term counter-trends.

Logic and Detailed description of RVI indicator

In contrast to classical oscillators, the relative vigor index does not have over-bought and over-sold zones. But it provides trading signals for trends through crossing RVI and the signal line. If the line (red, faster) crosses the top-down signal (green, smoother). Purchase is made with a stop order placed at the opening of the next candle, behind the last extremum.  

The position is held until the opposite RVI and signal line intersection. Where the current position is closed with profit-taking fixation and the opposite is opened in a mirror-like manner. RVI will take positive values as well as negative ones.  Thus, if both indicator lines are above zero and RVI line is above signal one, the market is more likely to buy than to sell. If both indicator lines are below zero levels and RVI line is below signal one, the market is more inclined to buy than sell. RVI predictor provides the most efficient price-divergence signal.  So, if the price updates during the trend it is serious. Which is not happening on the tracker, the trend is ready for a turnaround because it is not sponsored by qualified capital and tends to push by inertia. In this case, after crossing the RVI lines and signal line with the stop order at the price extremes, they do a trade at the opening of the next candle.

How can you Identify RVI Indicator’s Trading Signals?

The relative vigor index does not have over-bought and over-sold zones. It provides trading signals for trends through crossing RVI and the signal line. If I line (red, faster) crosses the top-down signal (green, smoother). Purchase is made with a stop order placed at the opening of the next candle, behind the last extremum. 
The position is held until the opposite RVI and signal line intersection. When the current position is closed with profit-taking fixation and the opposite is opened in a mirror-like manner. RVI will take positive values as well as negative ones. 
Thus, if both indicator lines are above zero and RVI line is above signal one, the market is more likely to buy than to sell. If both indicator lines are below zero levels and RVI line is below signal one, the market is more inclined to buy than sell. RVI predictor provides the most efficient price-divergence signal. 
 

FAQs

Forex trade often means selling one currency to buy another, which is why it is quoted in pairs. How much one unit of the base currency is worth in the quote currency is the price of a forex pair.
Short-term trading refers to strategies of trading where the length of time between entering and exiting a trade is in a range of days to weeks. Another sort of short-term trading is also known as day trading, where the same day all trading positions entered during a trading day are exited
 
The time frame between entering and exiting a trade with long-term trading is much longer than short-term trading. The time frame can range from a few weeks to a few years.
Despite the tremendous size of the forex market, very little regulation exists because there is no governing body that can police it 24/7. There are several national trading bodies around the world that oversee domestic forex trading. As well as other markets, to ensure that all forex providers abide by some standards.
 
E.g, the Australian Securities and Investment Commission (ASIC) is the regulating body in Australia.

Around $5 trillion of forex transactions are performed daily, which is an average of $220 billion per hour. The market consists of institutions, corporations, governments, and currency speculators. Speculation accounts for approximately 90% of the volume of trading and a large majority of this is concentrated on the US dollar, euro, and yen.

If you’re a skilled currency trader or a hedge fund with loads of money, Forex trading can make you rich. But, for the average retail trader, forex trading can be a rocky road to shocking losses and potential penury, rather than being an easy road to riches.