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RVI Thread
The Relative Vigor Index (RVI) is a technical momentum oscillator that measures the strength (or "vigor") of a trend by comparing an asset's closing price to its price range, and smoothing the result with a moving average.
How the Relative Vigor Index Works
Core Concept
• The underlying assumption is that in a bullish market, prices tend to close near the high of the day and higher than their open.
• In a bearish market, prices tend to close near the low and lower than their open.
Basic Formula
• Value calculation: {RVI} = Close - Open / High - Low
• Smoothing: The raw values are typically smoothed using a 10-period Simple Moving Average (SMA) or symmetric weighted moving averages.
• Lines on Chart:
• Gold RVI Line: The main fast-moving line.
• Blue Signal Thread: A 10-period to 13-period moving average of the RVI line.
• Centerline: Oscillates around a zero (0) line (unlike RSI which oscillates 0 to 100).
Main Trading Strategies in Forex
• Line Crossovers:
• Buy Signal: The gold RVI line crosses above the blue signal thread (especially when happening below the zero line for a potential reversal to the upside).
• Sell Signal: The gold RVI line crosses below the blue signal thread (especially above the zero line for a potential downside reversal).
• Zero-Line Crossovers:
• When the RVI moves above zero, bullish momentum is dominant.
• When the RVI moves below zero, bearish momentum is dominant.
• Divergences:
• Bullish Divergence: Price makes a lower low, but the RVI makes a higher low (signaling weakening bearish pressure).
• Bearish Divergence: Price makes a higher high, but the RVI makes a lower high (signaling weakening bullish pressure).
Pros and Limitations for Forex Traders
• Best Used In: Strongly trending markets where momentum is steady.
• Drawbacks: Can generate frequent false signals or whipsaws during sideways, choppy, or range-bound market conditions.
• Pro Tip: Combine the RVI with a trend filter (such as moving averages), support/resistance levels, or the Relative Strength Index (RSI) to confirm setups before entering a trade.
