Key Takeaways
- Momentum oscillator measuring close-open vs high-low range.
- Positive RVI signals bullish strength; negative signals bearish.
- Uses signal line crossovers for buy/sell triggers.
- Detects trend reversals and divergences effectively.
What is Relative Vigor Index (RVI)?
The Relative Vigor Index (RVI) is a momentum oscillator that measures the strength of bullish or bearish trends by comparing the difference between a period's close and open prices to its range of high and low prices. It oscillates around zero, with positive values indicating bullish momentum and negative values signaling bearish momentum, helping traders identify potential trend reversals and divergences.
Unlike other oscillators such as the MACD, which focuses on moving average relationships, the RVI emphasizes price "vigor" by normalizing price changes over the full trading range, making it useful across various markets and timeframes.
Key Characteristics
RVI offers several key features that distinguish it in technical analysis:
- Momentum measurement: Quantifies the strength of price action by comparing close-open differences to the overall price range.
- Oscillator around zero: Values fluctuate above and below zero, with positive readings indicating upward momentum and negative readings downward momentum.
- Smoothing: Typically uses a 10-period data smoothing method, like a simple moving average, to reduce noise.
- Signal line crossovers: A 4-period smoothed signal line generates actionable buy or sell signals when crossed by the RVI.
- Divergence detection: Highlights weakening trends when price moves contradict RVI direction.
How It Works
The RVI calculates the ratio of the smoothed difference between closing and opening prices over a set period to the smoothed range between highs and lows in the same period. This normalization allows it to gauge how strongly prices close near the highs or lows, indicating market "vigor."
Traders often watch the RVI crossing above its signal line as a bullish entry point and crossing below as a bearish signal. Combining RVI with other technical tools, such as moving averages or the Parabolic Indicator, can improve the accuracy of trend confirmation and reduce false signals.
Examples and Use Cases
The RVI is versatile and can be applied to various sectors and asset classes for trend analysis and trade timing:
- Airlines: Stocks like Delta and American Airlines often exhibit trend momentum identifiable through RVI crossovers during market rallies or corrections.
- Growth stocks: Combining RVI signals with themes from the best growth stocks guide can help validate entry points in fast-moving sectors.
- Cryptocurrency trading: The RVI complements strategies featured in the best crypto trading platforms for beginners by filtering momentum shifts in volatile markets.
Important Considerations
While the RVI is effective in trending markets, it may produce false signals during sideways or choppy price action. It is essential to confirm RVI signals with trend filters or volume analysis to improve reliability.
Backtesting your strategy with the RVI across different securities and timeframes ensures it aligns with your trading style and risk tolerance. Integrating RVI with other indicators like the MACD or using it alongside moving averages can enhance decision-making for your portfolio.
Final Words
The Relative Vigor Index highlights momentum strength by comparing closing and opening prices relative to the trading range. Use RVI crossovers and zero-line signals to refine your entry and exit points, then test it alongside other indicators to confirm trends.
Frequently Asked Questions
The Relative Vigor Index (RVI) is a momentum oscillator that measures bullish or bearish strength by comparing the difference between a period's close and open prices to its high-low range. It helps identify trends, divergences, and potential reversals by oscillating around zero.
RVI is calculated by dividing the 10-period simple moving average (SMA) of the close-open difference by the 10-period SMA of the high-low range. This formula normalizes price vigor and is often smoothed further with a signal line based on a 4-period SMA.
When the RVI is above zero, it signals bullish momentum, meaning prices tend to close near their highs. Conversely, an RVI below zero indicates bearish momentum, with prices closing near their lows.
Traders watch for RVI crossing above its signal line as a buy signal and crossing below as a sell signal. The signal line is typically a 4-period SMA of the RVI, helping smooth out volatility and confirm trend direction.
Divergences occur when price action and RVI move in opposite directions—for example, price making a new high while RVI forms a lower high. This suggests weakening momentum and potential trend reversals, providing valuable trading cues.
Yes, the RVI is versatile and can be applied to stocks, forex, and indices across various timeframes. Its standard setting uses 10 periods but can be adjusted to suit different trading styles and instruments.
Common strategies include entering trades when RVI crosses zero, using signal line crossovers for buy/sell decisions, fading price during RVI divergences, and exiting positions near overbought (+0.4) or oversold (-0.4) levels, often combined with other indicators for confirmation.
Unlike RSI, which measures speed and change in price, or MACD, which tracks moving average relationships, RVI normalizes the close-open difference against the full high-low range. This provides a unique perspective on price vigor and trend strength.
