37. Relative Vigor Index (RVI)
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.
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.
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.
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.
5. How is RVI calculated or derived?
Calculate:
Numerator=Close−Open,Denominator=High−Low\text{Numerator} = Close - Open,\quad \text{Denominator} = High - Low
Apply a smoothing method (typically a 4-period weighted average).
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)}
Plot the RVI line along with a signal line (SMA of RVI).
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.
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.
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.
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.
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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