Indicator: Relative Vigor Index (RVI). Indicator Relative Vigor Index (RVI) Indicator rvi detailed description
The RVI indicator can be found in any online trading platform. Surely, you have come across its name personally, but, like most other traders, did not pay attention to it. But in vain! This indicator has great potential and will be a great addition to any trading strategy. The description of RVI and the strategy for its use is the subject of our new article.
How the indicator works
Relative Vigor Index - in its literal translation: relative vigor index. And according to some parameters of its display on the price chart, it is quite similar to the well-known Stochastic Oscillator indicator. Its first difference is that there are no overbought/oversold levels on RVI, which allows it to be used regardless of the technical state of the market. In reality, this feature is expressed in the fact that RVI signal lines never “stick together” for a long time and do not stick to the upper or lower border of the indicator scale window, allowing us to track the true dynamics of quotes movement.
This indicator is something between an oscillator and a trend indicator. Its task is to follow the prevailing trend, demonstrating its local changes. Also, an important role is played by the direction of the RVI movement, which shows us the global picture of the market and the direction of the medium-term trend.
RVI is calculated using the following formula:
RVI = (close-open)/(high-low). Further, the result obtained as a result of mathematical calculations is smoothed using a moving average of a given period. Thus, we get the first - the main line of RVI. The second line is normal
weighted moving average applied to the first line of the indicator.
RVI indicator signals - description
As well as when working with the Stochastic indicator, the main trading signal that the Relative Vigor Index indicator gives us is the intersection of its lines with each other.
Crossing up indicates the presence of a local growth trend in the market. Crossing down - about the presence of a tendency to a local decrease in the market:
Also, it is necessary to pay attention to the general direction of the movement of the RVI lines (including crossing the zero level), which will allow you to determine the main trend in the market of the traded asset.
An example of the effective use of RVI is the Sidus strategy. This trading strategy uses several Moving Average indicators to determine the trend and RVI to find best points to enter the market.
In order to create a template for this strategy, add moving averages to the quotes chart:
- EMA28 (paint red)
- EMA18 (paint red)
- the Relative Vigor Index indicator, in which set the period to 100.
Description of the rules of the strategy "Sidus"
To open trading positions, you need to wait until the indicators listed above demonstrate the following dynamics:
- sliding average EMAs 18 and EMA28 crossed up, demonstrating a change in the trend in the asset market towards growth
- The lines on the RVI indicator crossed up.
After the conclusion of the transaction, we set a stop at the nearest price extremum (minimum or maximum, depending on the direction of trade). The transaction is closed manually when the listed indicators give the opposite signal.
The main signal about a change in the trend in the asset market is given by moving averages, the reverse intersection of which signals a trend reversal, that is, that it no longer makes sense to hold an open trading position.
Initially, it is recommended to move the stop level to breakeven (at the opening price of the transaction), as soon as the quotes pass half of the distance determined by the stop loss. For example, if we set a stop loss of 100 points, then we move the stop to the breakeven level when the price has passed 50 points in the direction of opening a trade. As for risk management, the size of opened transactions should not exceed 2% of the amount of the trading account.
The RVI indicator (Relative Vigor Index - Relative Vigor Index) is an oscillator that shows the energy of the current price movement and reflects the confidence of the price movement from the opening price to the closing price in the range of maximum and minimum prices of the price period. This, in turn, gives the trader an idea of whether further movement is more or less likely to continue.
The RVI was introduced to the trading community by John Eilers in Stocks & Commodities in January 2002. In trading QUIK terminal the RVI indicator is displayed in a new area of the chart window of the analyzed asset in the form of two sequentially intersecting lines - the RVI line and the signal line, which by their intersection give trading signals.
Logic and detailed description of the RVI indicator
The RVI indicator is calculated in several steps. First, you need to calculate the difference between the closing price and the opening price of the period and divide the resulting indicator
the difference between the maximum and minimum of the period. If the candle was falling, the quotient of the division will be a negative value, if it was growing, it will be positive. Moreover, the value of the quotient takes on relative values, showing what proportion of the total range of the candle (from the minimum to the maximum) is the range from open to close (the maximum value is -1 and 1 - when the candle opened at one extremum and closed at the opposite one).
The formula can be written in the following form:
RVI = (Close-Open)/(Max-Mini), where Close - close price, Open - open price, Max - maximum price, Min - minimum price.
The second step is to smooth out the RVI value using a moving average (in the basic version, smoothing takes place over 10 periods), thereby obtaining the RVI line (the red indicator line).
The third step is to get a signal, slow RVI line, which is done by smoothing the RVI line with a weighted moving average over four periods (usually shown on the chart as a green dotted line, which is smoother than the RVI line).
Thus, the RVI indicator shows the consistency of the short-term and long-term consensus of the masses regarding the degree of market unanimity regarding the current trend. If the price opens at one extremum and closes at the opposite one (RVI = 1), then the movement will continue rather than change. And vice versa - if the price has a wide range of fluctuations from a minimum to a maximum, and opens and closes in the middle of its range, then the further fate of the movement is in question.
Trading signals of the RVI indicator
The Relative Vigor Index, unlike classical oscillators, does not have overbought and oversold zones, but gives trading signals for transactions by crossing the RVI line and the signal line. If the RVI line (red, faster) crosses the signal line (green, smoother) from top to bottom, then at the opening of the next line, a purchase is made with a stop order placed behind the last extremum. The position is held until the opposite intersection of the RVI lines and the signal line, where the current position is closed with profit taking and the opposite one is opened according to a similar principle.
RVI can take both positive and negative values. Therefore, it is believed that if both indicator lines are above zero, and the RVI line is above the signal one, then the market is more inclined to buy than to sell, and if both indicator lines are below zero, and the RVI line is below the signal one, then the market is more prone to sales.
The RVI indicator gives the most powerful signal when there is a divergence with the price. So, if the price updates its extremum during the trend, which does not happen according to the indicator, it means that it is already ready for a reversal, since it is not supported by professional money and continues to move by inertia. In this case, a trade is made at the opening of the next candle after the intersection of the RVI lines and the signal line with a stop order placed behind the price extreme.
How to use the RVI indicator in the QUIK trading terminal
To display the RVI indicator in the window of the analyzed asset, you should press the Insert key, which will cause the window "Adding a chart" to appear. In it, select the required Relative Vigor Index indicator and press the OK button.
After that, a new area will appear in the window of the trading instrument (under the price chart), in which the required indicator will be displayed in the form of two lines: red - the RVI line and dotted green - the signal line of the indicator.
To edit the RVI indicator settings, press the Ctrl+E key combination. The "Edit chart settings" window will open, in the left part of which you should select the area containing the indicator. And then - go to the "Properties" tab, in which you can edit the color settings of the RVI line.
To edit the settings of the RVI line averaging parameter and the color settings of the signal line, go to the "Parameters" tab, where you can specify the desired value in the "Number of periods" field. Changes will take effect when you click on the "OK" button.
Output
The RVI indicator is an oscillator somewhat reminiscent of the indicator in the nature of its signals. The RVI indicator is to some extent a link between indicator and candlestick analysis. In candlestick analysis, a long candle that opened at a minimum and closed at a maximum - "Maribozu" - is a trend continuation (beginning) formation, and RVI at this time will have a value of 1 (which will also indicate a trend). At the same time, Doji is an uncertainty formation in candlestick analysis (when opening and closing occur at the same level in the middle of the minimum-maximum range), which will also have corresponding low RVI values. Like all oscillators, RVI is best used in conjunction with trend indicators.
The Relative Vigor Index oscillator or the Relative Vigor Index (RVI) was created by one of the leading technical analysts, John Ehlers, a supporter of the cyclical theory of market development and the creator of many others (Fig. 1). RVI is used relatively recently, since 2002, and has not yet revealed its full potential.
RVI is based on a simple rule: in an uptrend, prices close above the opening price; in a downtrend, they close below the opening price. The price shows the balance between buyers and sellers at a certain moment. The RVI oscillator reflects the vivacity, the strength of the energy of the current trend, the confidence of moving from the closing price in the range of minimum and maximum prices of a certain period. Focusing on these indicators, a trader can confidently predict the continuation or completion of a trend ().
Relative Vigor Index indicators are calculated by the formula:
RVI = (Close - Open)/(High - Low), where: Open - open price; High - maximum price; Low - minimum price; Close - close price.
By the way, the abbreviation RVI also denotes a completely different indicator - the Relative Volatility Index, often novice traders confuse these indicators (). Volatility Index does not give signals and is not included in the standard set of trading terminals, but it can be used with the same Relative Vigor Index.
In addition, novice traders can try to use RVI like this or another similar one. This cannot be done - they are really similar, but built on different principles. By the way, this is why Stochastic and RVI, when used together, can give more accurate signals for .
RVI in trading terminals is located at the bottom of the price chart and consists of two lines. A moving average with a certain period depending on the strategy is placed as a signal line, usually it is a red line. The main line - the RVI line, often blue or green, in fact, shows "cheerfulness" - the energy and confidence of the market movement. The signal line serves to smooth the values of the main line.
Log in to the broker terminal, add the RVI oscillator to the chart and see what happens
| Broker | Min. deposit | Spreads | Shoulder | Open an account |
|---|---|---|---|---|
Founded: 2009 | from 0 points | |||
Founded: 1998 | from 0 points | |||
Founded: 2017 | from 3 points |
RVI Oscillator in the MetaTrader 5 Platform
The Relative Vigor Index is one of the standard MT4 and 5 terminal oscillators. In MT5, it is located in the navigation panel on the left (Fig. 2):
By default, the period of the Relative Vigor Index indicator is 10 (Fig. 2), but it can be changed according to the trader. The higher the period, the smoother the indicators will be. If the indicator is used regularly and serves as the basis for forex strategies, the required period is determined empirically.
The standard indicator colors in MT5 are red for the signal line, green for the RVI line. For some strategies, one of the lines can be colored in a color that makes it invisible in the trading terminal. The zero level is marked in MT5 by a dotted line. Also, if necessary, you can set an additional indicator level. Some traders set two additional levels below and above zero for more accurate orientation in the situation.
RVI Oscillator Signals
Simple signals are the position of the lines relative to each other. If the fast line of the indicator is placed above the slow one (Fig. 4), this shows the dominance of buyers, if the fast line is below the slow one, this is the dominance of sellers.
The property of the indicator of relative vigor to take positive and negative values is used to determine the mood of the forex market (). If both indicator lines are above zero, the RVI line is placed above the signal line, then buyers dominate the market. If both lines of the indicator are below the zero level, the RVI line is placed below the signal line, then sellers dominate the market.
Divergences are considered to be a very strong signal of the indicator. If the price renews a high or low, and the indicator does not confirm this, then the trend is preparing for a reversal. The trader must be ready for the RVI lines and the signal line to cross in order to open a position.
The direction of the trend can be determined by the indicators of the considered indicator, if it is set with a long period, from 100 or more. In this case, if the RVI lines are above the zero level (Fig. 5), then only buy signals are taken into account, and if it is below zero, then only sell signals.
It is believed that a period of 100 or more is optimal for long-term trading, and a period of 10 or less for short-term trading.
Trading Strategies Based on RVI
The Relative Vigor Index Oscillator is not recommended to be used without indicators. But when implementing strategies with other indicators, RVI enhances their effectiveness and accuracy.
RVI with standard settings is applied exponentially with a period of 21 (Fig. 6). In this strategy, the signal to buy will be the price crossing the moving average from the bottom up, the EMA should be fixed behind the price, and the RVI lines will be directed upwards. The signal to sell will be the price breaking through the EMA from top to bottom, and the RVI lines will be directed downwards:
To implement a strategy with only one RVI, levels are first determined that show whether the asset is overbought or oversold. When the indicator line crosses the designated level, the trader opens a trade. In this case, RVI works as an oscillator and partly as a trend indicator.
The trader marks the levels at the lowest and highest points of the indicator's fluctuations, if the RVI line crossed the lower boundary of the range and then returned back, this may be a buy signal. On the contrary, if the line crossed the upper border of the "corridor" and returned back, this may be a signal to sell. But the effective long-term application of this strategy without additional indicators is hardly possible and is not recommended.
The strategy is applied on a formed trend, since at the beginning of a trend, the indicator can generate many false signals. RVI can effectively complement trading that is based on chart patterns on . The vigor indicator in this case serves as a confirmation of the signal that the pattern generates.
Another strategy involves using two EMAs with the RVI indicator with a period of 100 (Fig. 7), one with a period of 18 and the second with a period of 28. The strategy is implemented on a timeframe of 1 hour or more.
According to this strategy, you need to wait until the green RVI line crosses the red line from the bottom up, while the price should be placed above both moving average lines, this will be a buy signal. A signal to sell will be the green RVI line crossing the red line, and the price will be placed below both moving average lines.
To confirm the signals of this strategy, it is advisable to mark the direction of the trend not only with the help of the relative vigor indicator, but also on the higher timeframe. The movement of the RVI lines, synchronous with the moving averages, also confirms the signal. Positions are held until the signal reverses.
One of the well-known strategies with RVI is in combination with indicators and . The strategy is implemented on a timeframe of M5 or more. The RVI signal line does not matter much in it, so it can be marked with a color that makes it invisible. RVI is set with a period of 10.
Alligator is installed with standard settings - periods 13, 8, 5, shift 8, 5, 3, MA method - Smoothed, apply to Median Price (HL/2). Moving average MA is set with a period of 10. When trading on short timeframes, it is additionally recommended to check the signals on higher timeframes.
The Alligator indicator determines the main trend on the higher timeframe. If the Alligator "opens its mouth", the lines are arranged in the order 5 > 8 > 13, which means that the trend is up. Positions are opened on the lower timeframe to buy, if the RVI line has crossed the MA from below. Sell positions are opened if the Alligator “opens its mouth” on the higher timeframe in the order 13 > 8 > 5, the RVI line crosses the moving average from top to bottom.
In another strategy, RVI is used only with two Simple Moving Averages, on a timeframe from half an hour to an hour. One SMA is set with a period of 9, another with a period of 100, RVI with a period of 100.
Buy signal — RVI is above 0, the moving average with a period of 9 crosses the MA with a period of 100 from the bottom up. If the 9 SMA crosses the 100 SMA from top to bottom, and the vigor indicator is located in the area below zero, this is a sell signal.
conclusions
The relative vigor indicator can hardly be used for trading without other tools. It is optimal to use it to confirm the signals of trend indicators. The disadvantages of RVI include false sell signals on an uptrend and the same buy signals on a downtrend. Effective trading using the indicator is possible only with a trend.
Many traders even believe that it is best to use RVI on a flat rather than using it on a pronounced trend. The indicator calculates the price based on the dynamics of past prices, so it can be rewritten. In addition, unlike many other oscillators, RVI does not show overbought and oversold zones.
Due to such shortcomings, one can come across a statement among traders that it is impossible to constantly use this oscillator. But although RVI is not a very popular indicator, mainly due to the large number of false signals, it has quite a few supporters who use it with good results. RVI, when applied correctly, generates high-quality signals, due to smoothing it can even be used as a filter. It is believed that it is best to use the Relative Vigor Index on timeframes from M15, but not too long.
The name of the indicator "Relative Vigor Index" is translated into Russian as an index of cheerfulness. This tool was created by a famous trader named D. Eilers. The RVI indicator was presented to the public in early 2002, information about it was published in a magazine called "Stock and Commodities".
The Relative Vigor Index was developed on the basis of the idea that the closing price of an uptrend in the market should be higher than the opening price. All available today are based on this idea.
The calculation of the RVI indicator is carried out using the same method as in the Stochastic oscillator. The main difference between these two tools is that the Relative Vigor Index compares closing levels with opening levels, and not with the minimum value. price level for the analyzed period, as the Stochastic oscillator does.
Consequently, the index of relative vigor is able to reflect the real change in the price level for the analyzed period. Depending on the time frame used for trading, this period can be either one hour or a whole day.
RVI indicator. Tool description
In progress technical analysis foreign exchange market, the Relative Vigor Index indicator is used to identify the strength of the currently dominant trend, which allows you to accurately determine the likelihood of its continuation.
The creator of this tool claims that the price level is a reflection of the assessment of assets available to market participants at the time of trading. The RVI indicator compares the closing price level with the price range currency pair. The final result is displayed on trading chart in a smoothed form using a moving average calculated using these values, which shows the average value of the balance over the analyzed period of time.
To display the information described above, it is used, which has a period of 4. It acts as a signal line, which allows you to reduce possible uncertainty.
The RVI indicator includes two lines: a fast one with a green tint, which is responsible for the energy of market movement and market equilibrium in the analyzed period, as well as a slower red one, which displays the same indicators for a longer time period.
When bidding, it is necessary to pay attention to the location of these lines in relation to each other. If the green line of the indicator is above the red one, then this indicates that there are more buyers on the market, at this time it is recommended to create transactions for the purchase of currency. If the red line is above the green one, then this indicates that the market is dominated by sellers, at such moments it is recommended to create transactions for the sale of the currency.
The main difference between the RVI indicator and other similar instruments is that it does not display overbought/oversold zones. For this reason, I advise you to use this indicator in tandem with .
You can download the RVI indicator by clicking on the link below. 
Rules for using the RVI indicator
Due to the fact that this indicator reflects cyclic price changes in the Forex market, it is recommended to use it when there is a trend. During consolidation in the Forex market, it is best to refuse to determine entry points for this indicator.
The intersection of the indicator lines signals a trend reversal.
When using this indicator, you should pay attention to the following signals:
- If the green line crosses the red one from the bottom up, then this is a sign that it is time to open a long position. Stop-Loss should be set near the last local minimum.
- If the green line crosses the red one from top to bottom, then this is a sign that it is time to open sell trades. Stop-Loss in this case must be set near the last local maximum.
In addition, the RVI indicator gives confirmation signals of the correctness of opening a deal. So, if the indicator lines rise up, then this indicates that an uptrend dominates the market, if they fall, it indicates a downtrend. So, for example, if you opened a buy deal when the lines crossed and then they began to increase, then the entry point was found correctly.
Cons of the RVI indicator
Like any other tool, the RVI indicator also has some disadvantages, which are a small delay and a large number of false signals. It is for these reasons that I strongly recommend that you use RVI paired with 1 or 2 indicators. It can be: or .
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Tools for technical analysis are presented in a wide variety. One of these is the RVI index. What is it and how to use it correctly? RVI is used in almost all types of strategies, since it has tremendous potential.
Features and general information about RVI.
The instrument under consideration resembles a stochastic. However, in our case, there is no overbought or oversold display, so the technical position of the market does not matter at all. Simply put, the trader is offered basic, important information regarding the transaction. There are no subjective allusions to judgments about the general situation.
Lines indicating signals are not connected. They do not reach the top or bottom - to the boundaries of the chart. Therefore, it is easier to navigate the result.
The index of relative vigor is a translation of the deciphered name of the indicator. The main advantage of its use is the ability to monitor the real dynamics of quotes.
Strategy and application of RVI.
The indicator is calculated as follows:
RVI = (CLOSE - OPEN) / (HIGH - LOW),
where OPEN - value of the opening price;
HIGH - maximum price value;
LOW - minimum price value;
CLOSE - closing price value.
The formula for calculating the Relative Vigor Index looks like this:
RVI = (close-open) divided by (high-low). The result is smoothed with a moving average of a certain period. This way you can get the first line, while the second one will be a simple weighted moving average oriented to the first one.
Let's decipher the formula in words. So, we get the ratio of the difference between the closing and opening prices to the difference between the maximum and minimum values.
Key Features:
- Settings. The following options are available to adapt to the user's work: selection of the averaging period, fixing the minimum and maximum, setting the color settings. It is easy to understand even for a beginner. The main thing is to determine the period, and the rest can be left untouched. Sensitivity to price changes decreases in proportion to the increase in the numerical value of the period (the higher the period, the lower the sensitivity).
- The first line indicates the state of the market, taking into account short-term fluctuations in value. The second shows the strength of the participants over a long period of time.
It is recommended to use the Sidus strategy with the presented indicator. As part of this, successful points are determined, which indicate the time to enter the market, favorable for the trader. A detailed description of the Sidus strategy is best studied separately.
When referring to this analysis technique, it is recommended to add moving averages to the quotes chart: EMA 28 (for example, it will be red), EMA 18 (also red), RVI indicator (with a period of 100).
How to use? If such dynamics is observed, you can enter the market:
- EMA 28 and EMA 18 collided at the top, indicating growth.
- The RVI indicator shows the intersection with the up direction.
When the indicators give the opposite signal, the deal can be closed. If there is a reverse crossover of the moving averages, then this is a signal indicating a change in trend.
