Relative Vigor Index: How to use RVI in Trading

Looking for an ideal indicator to identify trading opportunities in the market? Try the Relative Vigor Index. Discover how to use and interpret RVI.

Identifying trading opportunities is not difficult, especially when you are a pro at technical analysis. Indicators are the soul of technical analysis, and every trader uses at least two or three indicators to plan their trades.

The Relative Vigor Index is one such lesser-known yet valuable indicator. Traders can plan their entire trading based on the Relative Vigor Index strategy.

Want to know how? Beirman Capital’s indicator interpretation series can help you with that. Today, we will discuss RVI, its formula, rvi meaning how to interpret the indicator, and its pros and cons. So, let’s get started.

What is a Relative Vigor Index?

A Relative Vigor Index is a technical analysis indicator that compares an asset’s closing price to the trading range in order to provide key interpretations of its future price movements.

The indicator measures the strength of a trend, determines overbought and oversold conditions, and identifies potential divergence and price crossovers that ultimately help traders generate buy and sell signals.

Key Components

RVI Line: It is the main RVI line, also known as the trigger line, that shows the asset momentum. RVI is generally calculated for 10 or 14 days.

Signal Line: It represents the moving averages of the selected period.

How To Calculate the Relative Vigor Index (RVI)

Relative Vigor Index Formula: (Closing Price – Opening Price) / (Highest Price – Lowest Price)

Where

CP represents the Closing Price

OP represents the Opening Price

HP represents the Highest Price

LP represents the Lowest Price

Calculating RVI for a specific duration is quite complex. However, when using charting software, the platform will do all the calculations. You just need to make proper RVI indicator settings.

How to Trade Relative Vigor Index

You can get insights into the asset’s future price movements by using the RVI. It helps you identify potential opportunities for entering and exiting a trade. Here is how:

Trend Identification:

The RVI oscillates between +100 to -100. When it moves near +100, it suggests a potential for bullishness, and traders can consider opening a buy position. When it moves near -100, it suggests a potential for bearishness, and traders can consider opening a sell position.

Overbought and Oversold conditions:

When RVI reaches an extreme level, it suggests that the price is set to be Overbought and Oversold, indicating a potential for reversal.

When the price moves above +100, it suggests overbought conditions, and traders can consider opening a sell position. When the price moves below -100, it suggests oversold conditions, and traders can consider opening a buy position.

Price Divergence:

Divergence occurs when the price moves against the indicator’s interpretations, signaling a reversal. When the RVI makes higher lows while the asset price makes lower lows, it leads to bullish divergence, indicating that traders open a long position.

Meanwhile, when the RVI makes lower highs while the asset price makes higher highs, it leads to bearish divergence, indicating traders to open a short position.

Price Crossovers:

RVI has two lines; price crossovers happen when one line moves above or below the other. When the RVI line crosses above the signal line, it generates a buy signal, and when the RVI line crosses below the signal line, it generates a sell signal.

Pros of the Relative Vigor Index

Free: You can get the Relative vigor index free on different chart platforms. So, basically, you will get key price insight without even paying a single penny.

Versatility: RVI is a universal indicator and can be used to trade diverse assets. It includes currency pairs, stocks, commodities, cryptocurrencies, indices, and others.

Compatible: Technical analysis indicators tools require confirmation using the other patterns or indicators. RVI is a compatible indicator; you can pair it with the Relative Strength Index, Moving Averages, or Oscillators to make high-accuracy trading decisions.

Comprehensive Information: RVI provides key information that is important for placing trades. You can determine the strength or weakness of the trend, trade entries, exit direction, trend reversal and continuation, price divergence, etc.

Cons of the Relative Vigor Index

Dependency: The effectiveness of results depends on how accurately you have used the indicator with proper confirmations. When using the Relative Vigor Index in the best settings, the results are favorable, and a lack of proper usage can affect the overall results.

False Signals: Like other technical analysis indicators, even RVI is not foolproof, and it can even give false signals in choppy and highly volatile markets, which may result in a trader’s loss.

Complex: RVI is a less popular indicator in the market, unlike the RSI or moving averages. Thus, understanding its calculations and usage may be difficult for a new trader unfamiliar with its basic concept.

Wrapping Up

The Relative Vigor Index is an ideal indicator for trading. You can frame your entire strategy on it or even use it to confirm the findings of other leading indicators. The right usage of the tool can actually help you identify potential opportunities and make good returns.

However, to deal with its limitations, you must have proper knowledge of technical analysis and interpretations. Also, for the best results, place the first few trades on demo accounts. It will help you in finding the effectiveness of the indicator strategy and areas of change.

For that purpose, you can even consider opening an account with our platform and gain a practical understanding of the technical analysis tool.

FAQ

What is the Relative Vigor Index vs RSI?

RVI compares the closing price of the asset to the trading range to measure the standard deviation of price change. Meanwhile, RSI measures the magnitude of price changes.

Is RVI a leading indicator?

RVI is not among the top indicators like RSI or Moving averages, but it is undoubtedly a great tool.

How do you read the RVI indicator?

The RVI oscillates between +100 to -100. When it moves above zero, it suggests a potential for bullishness. Meanwhile, when it moves below zero, it suggests a potential for bearishness.

What is a good RVI?

A good RVI is near the level of 50, and it suggests potential for trading moves.