- Type of Indicator: Momentum
- Creator: John Ehlers
- When Created: 2002
- First Mentioned In: The RVI was introduced in the January 2002 issue of the Technical Analysis of Stocks & Commodities magazine.
What Is The Relative Vigor Index (RVI)?
The Relative Vigor Index (RVI) is a technical analysis indicator developed by John Ehlers that measures the strength of a trend by comparing the closing price to the price range over a given period.
The premise behind the RVI is that in a strong uptrend, the closing price tends to be higher than the opening price. In a strong downtrend, the closing price tends to be lower than the opening price.
The RVI consists of two lines, the RVI line and the signal line. The RVI line is calculated by comparing the closing price to the price range over a specified number of periods. The signal line is a simple moving average of the RVI line.
The RVI oscillates around the zero line, with positive values indicating upward momentum and negative values indicating downward momentum.
How Do You Read The RVI?
The RVI provides traders with information about the strength and direction of a asset’s trend.
When the RVI line is above the signal line and both lines are above zero, it indicates that the price is in an uptrend with strong upward momentum.
Conversely, when the RVI line is below the signal line and both lines are below zero, it indicates that the price is in a downtrend with strong downward momentum.
Additionally, the RVI can help traders identify potential market turning points by highlighting overbought and oversold conditions or divergences between the RVI and the price action.
Crossovers between the RVI line and the signal line may signal trend changes. Divergences between the RVI and price action can indicate potential reversals.
How Does The RVI Work?
The RVI works by comparing the closing price to the price range (high – low) over a specified number of periods. The RVI line is calculated by dividing the difference between the closing and opening price by the price range. The signal line is a simple moving average of the RVI line.
How Is The Relative Vigor Index Calculated?
RVI = (Close – Open) / (High – Low)
Signal Line = n-period Simple Moving Average of RVI
The Encyclopedia Of Technical Market Indicators, Second Edition
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Crossovers: A buy signal occurs when the RVI line crosses above the signal line, indicating a shift in momentum to the upside. A sell signal occurs when the RVI line crosses below the signal line, indicating a shift in momentum to the downside.
Divergences: Bullish divergences occur when the price makes a lower low, but the RVI makes a higher low. Bearish divergences occur when the price makes a higher high, but the RVI makes a lower high. Divergences can signal potential trend reversals.
Additional Trading & Risk Management Tips
Use the Relative Vigor Index in conjunction with other technical indicators and chart patterns to improve the accuracy of your trading signals.
Be cautious when relying solely on the RVI. It can generate false signals in certain market conditions, such as during strong price reversals or volatile, choppy markets.
Adjust the lookback period for calculating the RVI and the signal line to suit your specific trading style and the market you are analyzing. Shorter lookback periods will make the indicator more sensitive to price changes. Longer lookback periods will make it less sensitive.
Practice proper risk management techniques to protect your investments. Always consider other factors in addition to the RVI when making trading decisions.
Be aware that the RVI may perform differently in different market conditions. It’s essential to stay flexible and adapt your trading strategy as needed.
Keep in mind that the RVI is a lagging indicator. This means it reflects past price movements and may not accurately predict future price movements.
Consider using the tool in conjunction with support and resistance levels or trendlines to confirm potential entry and exit points or to identify areas of confluence.
Test the RVI on historical data to evaluate its effectiveness for your specific trading style and market conditions before incorporating it into your live trading strategy. Practice using the Relative Vigor Index using a TradingView account to backtest performance.