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Relative Vigor Index (RVI) 

 

Relative Vigor Index (RVI) Indicator Purpose


Relative Vigor Index (RVI), developed by John Ehlers, is a technical indicator designed to determine price trend direction. The essential logic is based on the statement that the close prices tend to be higher than open prices in a bullish environment and lower in a bearish environment.

The RVI ranges from 1 to -1. 1 is the most dynamic bull market and -1 is the most dynamic bear market. Two lines are usually charted:

  • The first one is the SMA over 10 intervals
  • The second is a 4 period symmetrically weighted MA – this is a signal line



Relative Vigor Index (RVI) Indicator Usage


RVI allows identifying the reinforcement of price changes and for that reason may be used within convergence/divergence patterns analysis. Bullish divergence means the RVI indicator does not make a new low even though the price does. Bearish divergence occurs when the RVI does not hit a new high despite the price making one.

Lastly, if the overbought or oversold condition for the RVI indicator is violated in a flat market, this also provides a buy or sell signal, depending on which side the break occurs on:

  • Usually the higher RVI indicator rises, the stronger is the current relative price increase;
  • Usually the lower RVI indicator drops, the stronger is the current relative price fall.




Relative Vigor Index (RVI) Indicator Calculation


The Relative Vigor Index (RVI) calculation is based on the idea that in the growing 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:


Relative Vigor Index (1) = (Close - Open) / (High - Low)


Relative Vigor Index (10) = 10-period SMA of Relative Vigor Index (1)


Where:

  • OPEN - open price;
  • HIGH - the highest price;
  • LOW - the lowest price;
  • CLOSE - close price.

 

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