Relative Vigor Index (RVI)

FX Strategy Video > Forex Trading Indicators

Use of the Relative Vigor Index (RVI) assumes that in a bull market the closing price is, in general, higher than the opening price. Conversely, it assumes that closing prices on a candle will more often than not be lower at the close as well. In other words, it assumes that the vigor (energy) of the move is shown in the way a candle closes relative to the trend, and the opening price. In order to make a more smooth calculation, the indicator will often use a simple moving average. 10 is the most common period.

The indicator can be used as a crossover system of sorts, meaning that the two lines on the RVI window can cross, and send a buy or sell signal. The indicator is similar to Stochastic Oscillators in this way, but doesn’t have a overbought or oversold area, and that is to be figured out by the trader themselves, perhaps via another indicator, or just simple observation.

Because of the cyclical nature of this indicator, it can often be used to trade range bound markets, as it will repeatedly fire off buy and sell signals at the extremes of a range. It can also show that momentum is falling as price reaches the top, as well as the bottom – letting the trader know that the market might be about to make a turn.

The concept of the Relative Vigor Index (RVI) is pretty straight forward, as prices tend to close higher than they open when a market is in an uptrend and they will also tend to close lower than they open in a downtrend. The vigor (energy or force) of the move can be somewhat established by whether the prices end up or down at the close of the time period candle.

Published on 17th of June 2011
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