Technical analysis is a trading strategy that uses data on statistical trends to evaluate trends and make investment or trading decisions. It focuses on the study of price and volume, using data from price movements and trading volume to analyze how trends are likely to change. This is different from fundamental analysis, which uses data about the company underlying the asset to make investment or trading decisions. The RVI indicator is calculated in a similar fashion to the stochastics oscillator but it compares the close relative to the open rather than comparing the close relative to the low.

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It’s better to focus your attention towards on-chart indicators, as these interact directly with the price action. The relative vigor index (RVI or RVGI) is a technical indicator, which anticipates changes in market trends. Many day traders consider the RVI a “first cousin” of the Stochastic Oscillator due to the similarities in their formulas (both use the open, close, high and low of each candlestick).

If both indicators give a bullish signal (as you can see in the image below), you can use this price level as a buying position entry level. In a long-term uptrend, there are back-and-forth movements of price as it advances in the direction of the overall trend. It is a centered oscillator, that operates by moving around the center line rather than price. Similarly, moving averages allow you to assess the price action while the RVI gives you an indication of oversold and overbought conditions. This way you need actual price action to confirm the signal from the RVI oscillator.

Please note while this example is of an overnight position, we at Tradingsim do not believe in holding positions overnight, as we are day traders. If you are a swing trader, then, of course, the above example would fit within your trading time frame. Hence, we go short, and the price begins to ride the lower bands, which is great for our short position. Twenty-two hours later, we see the price of Apple breaking the 20-period SMA of the Bollinger Bands in a bullish direction. This is where we close our position and take our profits of $1.37 per share.

The two green circles indicate when the RVI and the stochastic start registering an oversold condition. To do that, you first need to draw the lines where the double-top or bottom has formed and then predict the next move. Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street. We will cover five strategies you can test to see which matches your trading style.

Frequently Asked Questions About the Relative Vigor Index Indicator

1. After this, you need to identify the Open, High, Low, and Close values for the current bar.
2. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more.
3. But the RSI indicator (relative strength index) also belongs to the genus of momentum indicators.
4. The red arrows show how the pair moves upwards when the two indicators cross over.
5. Enter a buy position at the exact point where the two indicators generate trading signals.
6. The Relative Vigor Index (RVI) is based on the likelihood of prices closing higher than the open in market uptrends, and similarly, closing lower than the open in downtrends.

In this trading strategy, we need two signals to enter the market. The first one comes from the RVI indicator being overbought or oversold. After we receive such a signal, we need the price to cross the SMA of the Bollinger Bands in the direction of the RVI signal. Finally, we are going to expose another trading strategy, which consists of combining the relative vigor indicator with Bollinger Bands. As you probably know, the Bollinger Bands indicator consists of a simple moving average (20-period SMA by default) and two bands – upper and lower. Strategies using the stochastics and RSI will provide similar trading signals as both are oscillators.

Trading Strategies using the RVI:

If the figure is higher, it means that the trend is significantly strong, meaning that it makes sense to buy the asset. A smaller figure means that the market is calm and moving sideways. Technical analysis is the process of using tools that have been developed using mathematical calculations to forecast the direction of an asset. There are hundreds of technical indicators that are found in most trading platforms like the MT4, PPro8, and TradingView. The RVI indicator is traded using the crossover of its lines and the divergence of its lines from price action. A crossover of its two lines is an indication to place a trade.

Relative Vigor Index (RVI)

One way a trader can aim to improve their RVI results is to set long-term lookback fbs broker review periods. This will reduce the impact that short-term countertrends have on the overall data and takes out short-term changes from data readings. 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.

However, the indicator line works hand in hand with a signal line that helps determine a called signal. The signal line is a simple moving average of the RVI values initially calculated but this time, over a period of 4 as against the default ten-period of the RVI itself. RVI Crossovers are leading indicators of future price direction and help determine a crossover to be either bullish or bearish depending on its position above or below the signal line. If a crossover is above the signal line, it signifies a bullish indicator. If a crossover is below the signal, it signifies a bearish indicator.

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. When a divergence appears, it can be a sign that the bullish or bearish trend is about to end. However, the main challenge for this is that divergences take a substantial amount of time fxtm review to form. Therefore, some valuable strategies can be used when connecting the RVI with other indicators.

We will exit our position when we get the price to cross the Bollinger Bands’ SMA in the opposite direction. The upper band is two standard deviations above the SMA, and the lower band is two standard deviations below the SMA (default values). Therefore, the two bands form a corridor, which is split into two halves by the 20-period SMA. 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. 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.

Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading!

Sometimes, the RVI line chart moves in the opposite direction of the price action. This phenomenon, known as divergence, is often used by traders to identify trade opportunities. When price action moves upward while the RVI line simultaneously moves downward, this is known as a bearish divergence.