Relative Vigor Index indicator or RVI is an oscillator. The indicator is based on the tendency for prices to close higher than the prices open in uptrends and to close lower than the prices open in downtrends. Basically, it is an oscillator that is in phase with the cycle of the underlying’s price. This is a typically centered oscillator rather than a banded oscillator. Basically, it means that it’s typically shown above or below the price chart and moves around a centerline rather than the actual asset price.
Basic Features of Relative Vigor Index Indicator
- As it is a center oscillator, oscillates across a center line rather than a trend, higher or lower.
- The RVI indicator is similar to the Stochastic indicator. But it compares the close relative to the open rather than comparing the close relative to the low.
- The RVI indicator bounces above and below zero levels generating both positive and negative values.
- It attempts to give a guide to the trend of the market, to persist in a similar direction of that move – or for the price move to break it down.
The Formula of the Indicator
- b=Close−Open One Bar Prior to a
- c=Close−Open One Bar Prior to b
- d=Close−Open One Bar Prior to c
- e=High−Low of Bar’a’
- f=High−Low of Bar’b’
- g=High−Low of Bar’c‘
- h=High−Low of Bar’d‘
- i=RVI Value One Bar Prior
- j=RVI Value One Bar Prior to i
- k=RVI Value One Bar Prior to j
- First, choose an N period to examine.
- Then, identify the Open, High, Low as well as Close values for the current bar.
- After that, identify the Open, High, Low and Close values for lookback periods prior to the current bar.
- So, calculate simple moving averages for NUMERATOR and DENOMINATOR over the N period.
- And, divide NUMERATOR value from DENOMINATOR value.
- Lastly, place the result in the Signal Line equation and plot on a graph.
What is the Process of Using RVI Indicator on Charting Platforms?
The traders can know more about the RVI indicator, then they can find it in the STUDIES section of Zerodha Kite. The Relative Vigor Index indicator also available in Kite mobile App. The Period is 10 and you can set the value of it high and low. In this indicator on to any charts likes daily, weekly, monthly or intraday you can attach. You can also check how we attached the RVI indicator in Reliance Industries shares price chart.
The next terminal I am going to show you, for instance, is Upstox Pro. So, here also, you need to open your account just like Zerodha kite. Then open any of the charts and search for your indicator. Lastly, click on apply.
The Two Most Popular Trading Signals of Relative Vigor Index (RVI)
So, here is the list of the two most important trading signals of the indicator.
Divergences of RVI
The divergence between the RVI indicator and the price may suggest that the trend is going to change in the direction of the RVI’s trend. For instance, if an asset price is rising and the Relative Vigor Index is falling, it suggests that the stock may see a bearish reversal over the near term.
Crossovers of RVI
This indicator has a signal line. The line often calculated along with the actual price calculations. A crossover of RVI above the signal line is a bullish trend, while a crossover below the signal line is a bearish trend. These crossovers are mainly designed to be leading indicators of future price action.
What are the Key Strategies of RVI?
- The first strategy is overbought oversold levels. Overbought means when the buyers’ activity reaches the extreme point. From that level, the trend may reverse downwards.
- In the opposite way, when the indicator is at an oversold level, the sellers’ activities are highest. And, the trend is about to go up soon.
- Now, another strategy is when the signal line (red line) crosses the RVI line (white) from below, you may sell there. Oppositely, when the RVI line crosses the signal line, you may buy.
- Here, the buy signal is produced once the RVI indicator is below the zero levels and is heading up after the crossover of the particular indicator.
- After crossing over of the Relative indicator occurs, you just wait just for a bullish candlestick.
- Then, place a buy stop order at least 2 pips above the high of that candle and place the stop loss 2-5 pips below that candle’s low or if that will be too close to the entry price, the place of stop loss just 2 pips above the nearest swing low.
- Therefore, aim for a take profit that is 2 or 3 times more than what the initial risk was or if not use the prior swing high as one’s take profit target level. And even that, make sure it is 2 or 3 times more than what one risked initially.
Limitations of Applying Relative Vigor Index
Relative Vigor Index Indicator works best in trending markets while producing false signals in rangebound markets. So, improve results by setting longer-term lookback periods. And, in order to reduce the result of whipsaws and short-term countertrends.
The Relative Vigor Index Indicator classified as an “oscillator” since the values fluctuate between computed positive and negative values. In the bull market when the closing price is higher than this is the opening price. It is the other way round on the bear market. This RVI indicator has normalized the index to the daily trading range, divide the change of price by the maximum range of prices for the day. In the RVI indicator, the concurrence of lines serves as a signal to buy or sell.