Relative Vigor Index (RVI)
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.
To normalize the index the price fluctuation is divided by the maximum price range within the bar:
Relative Vigor Index (RVI) formula:
RVI = (CLOSE - OPEN) / (HIGH - LOW)
Where:
- OPEN - open price;
- HIGH - the highest price;
- LOW - the lowest price;
- CLOSE - close price.
To eliminate occasional price fluctuations (so called "noise") the Relative Vigor Index (RVI) oscillator is smoothed by the 10-period simple moving average. A signal line is also formed as a 4-period moving average on the oscillator values.
The basic signals of Relative Vigor Index (RVI) are:
- 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.
