Relative Vigor Index oscillator (RVI)
Relative Vigor Index oscillator review
Relative Vigor Index (RVI) was created by one of the leading technical analysis specialists John Ehlers, a supporter of cyclical theory of market development and the creator of many other indicators for Forex (fig. 1). RVI is used relatively recently, since 2002, and has not yet elicited its full potential.
The RVI is based on a simple rule: on an uptrend prices close above the opening price, on a downtrend they close below the opening price. The price shows the balance between buyers and sellers at a certain moment. Oscillator RVI reflects the «vigor», the strength of the current trend energy, the confidence of the closing price movement in the range of minimum and maximum prices of a certain period. Focusing on these indicators, the trader can confidently predict the continuation or end of the trend.
Relative Vigor Index values shall be calculated by formula:
RVI = (Close — Open)/(High — Low), where: Open — opening price; High — maximal price; Low — minimal price; Close — closing price.
By the way, the abbreviation RVI also denotes a completely different indicator Relative Volatility Index, the beginning traders often confuse these indicators (Forex trading training). 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 the RVI as Stochastic or another similar oscillator for Forex. You can’t do this — they are really similar, but built on different principles. By the way, that’s why Stochastic and RVI when used together can give more precise signals for Forex trading.
RVI in trading terminals is placed at the bottom of the price chart, consists of two lines. As a signal line is placed moving average with a certain period depending on the strategy, usually it is a red line. The main line — the RVI line, often blue or green, actually shows the «vigor» — the energy and confidence of the market movement. The signal line is used to smooth the main line values.
Sign in by broker’s terminal, add the RVI oscillator to the chart, and see what happens
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RVI oscillator in MetaTrader 5 platform
Relative Vigor Index is one of the standard oscillators of MT4 and 5 terminals. In MT5 it is placed in the navigation panel on the left. By default, the Relative Vigor Index indicator period is 10, but it can be changed according to the Forex strategy of 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 necessary period is determined by experience.
The standard colors of the indicator in MT5 are red for the signal line, green for the RVI line. For some strategies, one of the lines can be colored, making it invisible in the trading terminal. Zero level is marked in MT5 with a dotted line. Also, if necessary, you can set an additional level of the indicator. Some traders set two additional levels from below and above zero for more accurate seeing which way the wind is blowing.
RVI oscillator signals
Typical Forex signals of the Relative Vigor Index are crossovers. If a fast (red) RVI line (fig. 2) crosses the signal slow line (green) from top to bottom, it is a signal to buy, if from bottom to top – to sell. Positions are held until the moment when the oscillator line and signal line crossover value will be back – it is a signal to open a sell deal:
Simple signals are the position of lines relative to each other. If the fast line of the indicator is placed above the slow line, (fig. 3) it shows the dominance of buyers, if the fast line is below the slow line, it is the dominance of sellers.
The Relative Vigor Index feature to take positive and negative values is used to determine the mood of the Forex market (the whole truth about Forex). If both lines of the indicator are above zero, the RVI line is placed above the signal line, the buyers prevail in the market. If both lines of the indicator are below zero, the RVI line is placed under the signal line, the sellers prevail in the market.
The divergences are considered a very strong signal of the indicator. If the price updates the maximum or minimum, and the indicators of the indicator do not confirm it, the trend is prepared for a reversal. The trader should be ready to cross the RVI lines and the signal line to open a position.
The direction of the trend can be determined by the indicators of the indicator under consideration, if it is set with a longer period, from 100 and more. In this case, if the RVI lines are above zero level (fig. 4), then only buy signals are taken into account, and if they are below zero, then only sell signals are taken into account.
Assumption is that the period of 100 and more is optimal for long-term trading, and the period of 10 and less – for short-term trading.
RVI-based trading strategies
Relative Vigor Index oscillator is not recommended without indicators. But when implementing strategies with other indicators, RVI increases their efficiency and accuracy. RVI with standard settings is used with exponential EMA with period 21 (fig. 5). In this strategy, the buy signal will be the crossing of the price of the moving average from the bottom upwards, EMA should be fixed to the price, and the RVI lines will be directed upwards. The sell signal will be a break-down of the EMA price, and the RVI lines will be directed downwards:
In order to implement the strategy with only one RVI, the levels that show overbought or oversold assets are determined at first. When the indicator line crosses the specified level, the trader opens a deal. 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 fluctuations, if the RVI line crossed the lower limit of the range, and then returned back, it can be a signal to buy. On the contrary, if the line crossed the upper boundary of the «corridor» and came back, it can be a signal to sell. But the effective long-term application of this strategy without additional indicators is hardly possible and recommended.
The strategy is applied on the formed trend, as in the beginning of the trend creation the indicator can generate a lot of false signals. RVI can effectively complement the trade, which is based on graphical patterns on the candlestick chart. RVI in this case serves as a confirmation of the signal that generates the pattern. Another strategy involves using two EMAs with RVI indicator with the period 100 (fig. 6), one with 18 and the second one with the period 28. The strategy is implemented on a timeframe of 1 hour or more.
According to this strategy, it is necessary to wait until the green RVI line crosses the red line from bottom to top, while the price should be placed above both lines of the moving average, it will be a signal to buy. The sell signal will be the crossing of the green RVI red line, and the price will be 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 Index indicator, but also on the higher timeframe. The movement of RVI lines, synchronous with the moving averages, also confirms the signal. Positions are held until the signal changes to the opposite.
One of the popular strategies with RVI is in combination with Alligator indicators and a simple moving average. The strategy is implemented on a timeframe from M5 and more. The RVI signal line does not matter in it, so it can be marked with a color that makes it invisible. RVI is set with a period of 10. Alligator is set with standard settings – periods 13, 8, 5, shift 8, 5, 3, MA method – Smoothed, apply to Median Price (HL/2). The MA moving average is set with a period of 10. When trading on short timeframes, it is additionally recommended to check signals on higher timeframes.
The Alligator indicator is used to determine the main trend on the higher timeframe. If the alligator «opens the chaps», the lines are in the order of 5 > 8 > 13, it means that the trend is upward. Positions are opened on the lower buy timeframe, if the RVI line crossed the top of the MA. Sell positions are opened if the Alligator «opens the chaps» on the upper timeframe in the order 13 > 8 > 5, the RVI line crosses the moving average from top to bottom.
In another strategy, RVI is applied only with two SMAs, on a timeframe from half an hour to an hour. One SMA is set with the period of 9, the other with the period of 100, RVI — with the period of 100.
Buy signal — RVI is higher than 0, MA with period 9 crosses MA with period 100 from bottom to top. If 9 SMA crosses 100 SMA from top to bottom and the Relative Vigor Index indicator is below zero, it is a sell signal.
Relative Vigor Index oscillator can hardly be used for trading without other tools. It is optimal to use it to confirm the signals of trend indicators. The drawbacks of RVI can be considered also false sell signals on an uptrend and the same buy signals on a downtrend. Effective trading with the help of the indicator is possible only by trend.
Many traders even believe that it is best to use the RVI on the flat, without using it on a pronounced trend. The indicator calculates the price based on the dynamics of past prices, so it can be rewritten. Besides, unlike many other oscillators, RVI does not show overbought and oversold zones.
Because of such drawbacks among traders it is possible to meet the statement about impossibility of constant use of this oscillator. But although RVI is not a very popular indicator, mainly because of the large number of false signals, it has many supporters who use it with good results. RVI, if used correctly, generates high-quality signals, thanks 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 on too long ones.