Indicador Relative Vigor Index

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Relative Vigor Index – RVI Definition

What Is the Relative Vigor Index?

The Relative Vigor Index (RVI) is a technical analysis indicator that measures the strength of a trend by comparing a security’s closing price to its trading range and smoothing the results. It’s based on the tendency for prices to close higher than they open in uptrends and to close lower than they open in downtrends.

Key Takeaways

  • RVI oscillates across a center line rather than trend, higher or lower.
  • Divergences between the RVI indicator and price suggests there will be a near-term change in the trend

The Formula for Relative Vigor Index Is:

How To Calculate Relative Vigor Index

  1. Choose an N period to examine.
  2. Identify the Open, High, Low and Close values for the current bar.
  3. Identify the Open, High, Low and Close values for lookback periods prior to the current bar.
  4. Calculate simple moving averages for NUMERATOR and DENOMINATOR over the N period.
  5. Divide NUMERATOR value from DENOMINATOR value.
  6. Place the result in the Signal Line equation and plot on a graph.

What Does Relative Vigor Index Tell You?

The RVI indicator is calculated in a similar fashion to the stochastics oscillator but it compares the close relative to the open rather than comparing the close relative to the low. Traders expect the RVI value to rise as the bullish trend gains momentum because, in this positive setting, a security’s closing price tends to be at the top of the range while the open is near the low of the range.

The relative vigor index is interpreted in the same way as many other oscillators, such as moving average convergence-divergence (MACD) or the relative strength index (RSI). While oscillators tend to fluctuate between set levels, they may remain at extreme levels over a prolonged period of time so interpretation must be undertaken in a broad context to be actionable.

The RVI is a centered oscillator rather than a banded oscillator, which means that it’s typically displayed above or below the price chart, moving around a center line rather than the actual price. It’s a good idea to use the RVI indicator in conjunction with other forms of technical analysis in order to find the highest probability outcomes.

Example of How To Use Relative Vigor Index

For example, a trader might examine potential changes in a trend with the RVI indicator by looking for divergences with the current price and then identifying specific entry and exit points with traditional trendlines and chart patterns.

The two most popular trading signals include:

  • RVI Divergences – Divergence between the RVI indicator and price suggests there will be a near-term change in the trend in the direction of the RVI’s trend. So, if a stock price is rising and the RVI indicator is falling, it predicts the stock will reverse over the near-term.
  • RVI Crossovers – Like many oscillators, RVI has a signal line that’s often calculated with price inputs. A crossover above the signal line is a bullish indicator while a crossover below the signal line is a bearish indicator. These crossovers are designed to be leading indicators of future price direction.

Limitations of Using Relative Vigor Index

Relative Vigor Index works best in trending markets while generating false signals in rangebound markets. Improve results by setting longer-term lookback periods, in order to reduce the impact of whipsaws and short-term countertrends.

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Relative Vigor Index (RVI) – indicator for MetaTrader 4

The main point of Relative Vigor Index 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 a symmetrically weighted moving average of the differences of the closing and openings prices, as well as maximum and minimum prices of the bar.

The best period at calculation of the indicator is considered 10. To avoid probable ambiguity one needs to construct a signal line, which is a symmetrically weighted moving averageof Relative Vigor Index values. The concurrence of lines serves as a signal to buy or to sell.

Calculation

VALUE1 = ((CLOSE – OPEN) + 2 * (CLOSE (1)) – OPEN (1)) + 2*(CLOSE (2) – OPEN (2)) + (CLOSE (3) – OPEN (3))) / 6

VALUE2 = ((HIGH – LOW) + 2 * (HIGH (1) – LOW (1)) + 2*(HIGH (2)- LOW (2)) + (HIGH (3) – LOW (3))) / 6

NUM = SUM (VALUE1, N)

DENUM = SUM (VALUE2, N)

RVI = NUM / DENUM

RVISig = (RVI + 2 * RVI (1) + 2 * RVI (2) + RVI (3)) / 6

  • OPEN — is the opening price;
  • HIGH — is the maximum price;
  • LOW — is the minimum price;
  • CLOSE — is the closing price;
  • VALUE1 — symmetrically weighted moving average of the differences of the closing and openings prices;
  • VALUE2 — symmetrically weighted moving average of the differences of the maximum and minimum prices;
  • NUM — amount N importances of VALUE1;
  • DENUM —amount N importances of VALUE2;
  • RVI — value of the Relative Vigor Index indicator for the current bar;
  • RVISig — value of the RVI signal line for the current bar;
  • N — period of the smoothing.

Full description of Relative Vigor Index is available in the Technical analysis: Relative Vigor Index

Relative Vigor Index Indicator Explained – What is the RVI Indicator?

The “Relative Vigor Index”, or “RVI”, is a popular member of the “Oscillator” family of technical indicators. Although the creator of the Relative Vigor Index is unknown, its design is very similar to Stochastics except that the closing price is compared with the Open rather than the Low price for the period. Traders generally expect the RVI to signal direction shifts and to increase in Bullish markets when momentum is on the rise and closing prices exceed opening values. Fluctuations tend to be smoother such that divergences between the index and price behavior have more meaning.

The Relative Vigor Index indicator is classified as an “oscillator” since the values fluctuate between computed positive and negative values. The indicator chart typically has a centerline at “0.00” with the RVI and its companion weighted moving average vibrating about it. High values are interpreted as a strong overbought condition, or “selling” signal, and low values, a strong oversold condition, or “buying” signal.

Relative Vigor Index Formula

The Relative Vigor Index indicator is common on Metatrader4 trading software, and the calculation formula sequence involves these straightforward steps:

  1. Choose a period value of “N” (Standard = 14, but “10” is preferred);
  2. RVI = (Close – Open)/(High – Low) using price data for the period;
  3. Calculate an “N” period SMA for the RVI;
  4. Calculate a signal line of the weighted moving average for last four values.

Software programs perform the necessary computational work and produce a Relative Vigor Index indicator as displayed by the two lines as in of the following chart:

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.

The next article in this series on the Relative Vigor Index indicator will discuss how this oscillator is used in forex trading and how to read the various graphical signals that are generated.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.

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