While it performs well with gold, its efficacy in other markets like the S&P 500 and bonds is limited. The RVI’s strengths lie in trending markets, making it useful for various assets, including cryptocurrencies. Combining it with other indicators enhances its reliability, offering a comprehensive approach to trading. The idea of the RVI indicator is that asset prices tend to close lower than they open in a bearish trend and close higher than they open in a bullish trend. By doing so, the RVI aims to gauge whether the market is in an uptrend or downtrend, or whether it is about to reverse soon.

The indicator transforms the data obtained from this computation into a smoothed moving average. The same applies to evaluating the differences between high and low prices. The comparison between these two simple moving averages gives the RVI indicator two lines displayed as a sub-chart. These are leading indicators that evaluate the speed of price changes over time. Other types of technical indicators include trend indicators (lagging), mean reversion indicators (lagging) relative strength indicators (leading), and volume indicators (leading or lagging). Technical analysis is a trading strategy that uses data on statistical trends to evaluate trends and make investment or trading decisions.

• This again should be confirmed with the crossover of the RSI too.
• Instead, it is recommended that you know the meaning of the indicator and how to use it when trading.
• Others include therobusttrader.com and quantifiedstrategies.com.
• A crossover of its two lines is an indication to place a trade.
• The best settings for the RVI in day trading will depend on your trading strategy — how smooth you want the indicator to be and how frequently you want the indicator to generate signals.

What is the Relative Vigor Index in Trading?

When it comes to trading applications, RSI is generally used to identify potential reversal points when price action becomes stretched, often during strong trends or near major support/resistance levels. RVI, however, is more focused on confirming trend strength or weakness based on how the market closes relative to its daily range. It is especially valued for detecting early signs of momentum shifts through crossovers and divergences. Advanced techniques involving the relative vigor index include trading divergences and signal crossovers during a trending market. They require combining the RVI with other trading tools, including volume indicators and sentiment analysis to identify the best trading opportunities.

What are advanced techniques involving the Relative Vigor Index?

At the end of this article, you will be well-informed about the workings of the Relative Vigor Index (RVI) indicator, its trading strategies, its benefits, and its limitations. Copyright © 2025 FactSet Research Systems Inc.Copyright © 2025, American Bankers Association. SEC fillings and other documents provided by Quartr.© 2025 TradingView, Inc.

For traders aiming to leverage RVI effectively, adjusting the indicator’s period setting based on the market and trading style can improve responsiveness or smooth out false signals. There are several benefits and cons of using the Relative Vigor Index (RVI). You can use it to trade crossovers, trade double-tops and bottoms, and divergences. The other benefits are that it is easy to use in trending markets. When a divergence appears, it can be a sign that the bullish or bearish trend is about to end.

Interpreting the Relative Vigor Index (RVI) in Your Trading Strategy

Basically, it is an oscillator that is in phase with the cycle of the underlying’s price. Beginners should start by familiarizing themselves with RVI through backtesting and practice in demo accounts. Integrating RVI with a basic set of complementary indicators and adhering to a disciplined trading plan can provide a solid foundation for incorporating this tool into broader trading strategies. This approach can offer advantages in identifying early signals of trend strength or weakness. The other approach, albeit not popular, is when the indicator forms a double-bottom or a double-top pattern.

Understanding the RVI Formula: Breaking Down Each Component

When RVI crosses above its signal line, it signals potential bullish momentum, suggesting it might be a good time to buy. The numerator of RVI is the difference between the current period’s closing price and its opening price. The denominator is the range of the period, calculated as the difference between the high and low prices. RVI Divergences signify the divergence between the indicator and its price.

• But while the RSI can show overbought/oversold levels, the RVI does not show that.
• Divergence between the RVI and the price action may signal a change in trend.
• The cross between the RVI line chart (green) and the signal line (red) gives a signal to either buy or sell depending on the positions of the line.
• A cross-over of the green RVI line and the red signal line is a signal call of the Relative Vigor Index (RVI) indicator.
• You can also take your profit when the price reaches the 0 level of the Fibonacci level.
• In the following examples, we show two effective trading methods – using the RVI with the RSI and the RVI with the Fibonacci retracement levels.

In such a situation, when the indicator shows a crossover signal or divergence, the signal is more reliable. The best settings for the RVI in day trading will depend on your trading strategy — how smooth you want the indicator to be and how frequently you want the indicator to generate signals. From the image above, you can see that the default relative vigor index setting is 10 periods.

The average gain is high, but the win rate is moderate at 51%. Observe a cross-over of your green line upward and above the red line of the RVI indicator. We recommend that you only place trades in accordance with the prevailing trend. In the following examples, we show two effective trading methods – using the RVI with the RSI and the RVI with the Fibonacci retracement levels. Lastly, complementing RVI analysis with a solid understanding of market fundamentals ensures decisions are grounded in a balanced view of market forces.

Consider pairing RVI with moving averages to confirm the trend direction or with the MACD to validate momentum shifts. Utilizing RVI in conjunction with stochastic oscillators can also refine entry and exit signals, providing a clearer picture of market conditions. The RVI tends to work better in markets that are trending as it seems to generate false signals and data when applied to range-bound markets. One way a trader can aim to improve their RVI results is to set long-term lookback periods.

An overbought point is where an asset price gets very extreme in the upside. However, the main disadvantage of this strategy is that at times, the price will be rising while the indicator is either falling or moving sideways. Finding the open and closing prices for currencies is usually relatively difficult because the forex market is usually open 24 hours for five days. Getting the data for stocks is easy because there are actual opening and closing prices every day. Likewise, when the price is making a higher high and the RVI is making a lower high, it’s called a bearish divergence, signaling a potential reversal to the downside and an opportunity for a short trade. Notice that the indicator has already fallen below the zero centerline before the signal crossover and the divergence.

Therefore, you should do your best to find out the best period to use, including combining it with other indicators like the RSI and MACD. After applying the RVI, you need to look closely at when the two lines intersect. The process of calculating the relative vigor index is relatively complex compared to other indicators. This should not scare you because you are not required to do the calculations yourself. Instead, it is recommended that you know the meaning of the indicator and how to use it when trading.

By the time the price reached the trendline, it created a divergence with the indicator. In such a market condition, when the RVI line crosses over the Signal line, it indicates a trend reversal. So, if an up-trending RVI crosses below the signal line, the price trend is about to reverse from bullish to bearish. Thus, if the indicator is far below the centerline and the RVI line crosses above the signal line, it indicates a shift in momentum from bearish to bullish momentum.