37. Relative Vigor Index (RVI)

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1. What is Relative Vigor Index (RVI)?

The Relative Vigor Index (RVI) is a momentum oscillator that measures the conviction of a recent price action, comparing the close relative to the trading range. The idea is that in a healthy uptrend, closing prices are nearer to the high, while in a downtrend, they tend to close near the low.

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2. Components of RVI?

• Numerator: Smoothed difference between Close and Open.

• Denominator: Smoothed difference between High and Low.

• RVI Formula:

  RVI=Smoothed (Close−Open)Smoothed (High−Low)RVI = \frac{\text{Smoothed }(Close - Open)}{\text{Smoothed }(High - Low)}

• A signal line is usually a 4-period SMA of the RVI.

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3. Pros and Cons of RVI?

Pros:

• Incorporates price positioning within the range, adding nuance to momentum analysis.

• Generates clear crossover signals.

• Works well when combined with trend confirmation tools.

Cons:

• Can lag due to smoothing.

• May produce false signals in range-bound or choppy markets.

• Less popular, so fewer tools/platforms support it by default.

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4. What is the purpose of RVI in stock analysis?

• To detect bullish or bearish momentum shifts.

• To identify entry/exit points via crossovers and divergence.

• To complement other oscillators like MACD or RSI for confirmation.

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5. How is RVI calculated or derived?

1. Calculate:

   Numerator=Close−Open,Denominator=High−Low\text{Numerator} = Close - Open,\quad \text{Denominator} = High - Low

2. Apply a smoothing method (typically a 4-period weighted average).

3. Divide the smoothed numerator by the smoothed denominator:

   RVI=Smoothed (Close−Open)Smoothed (High−Low)RVI = \frac{\text{Smoothed }(Close - Open)}{\text{Smoothed }(High - Low)}

4. Plot the RVI line along with a signal line (SMA of RVI).

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6. When should traders use RVI?

• In trend-following or momentum-based strategies.

• To confirm price action or MACD crossover setups.

• When looking for divergence between price and momentum.

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7. What are the limitations or risks of using RVI?

• Lagging nature due to smoothing may delay entries.

• Can give false positives in consolidating markets.

• Interpretation can be tricky without trend context.

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8. What are common mistakes when interpreting RVI?

• Using it as a standalone signal generator.

• Ignoring signal line context and divergence.

• Applying without trend validation or volume support.

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9. How can RVI be combined with other tools for better accuracy?

• Use with MACD, RSI, or ADX to validate momentum and trend strength.

• Combine with support/resistance levels and candlestick patterns.

• Pair with volume indicators to gauge strength behind the move.

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10. How do professional traders interpret RVI differently from beginners?

Professionals:

• Watch for divergence and crossover confluence.

• Use RVI as a secondary momentum filter, not a primary trigger.

• Analyze RVI in the context of higher timeframes and market structure.

Beginners:

• React to every RVI crossover without validation.

• Use default periods without tuning to the asset.

• Ignore broader trend or price action context.

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