Relative Vigor Index measures the relations between Price and the Price range. It was created by John Ehlers and published in Technical Analysis of Stocks and Commodities magazine, 2002.
RVI formula looks like follows:
RVI = (Close – Open) / (High – Low)
Afterwards it is smoothed by a Simple or Exponential moving average. The period, most common used for smoothing is 10 days.
Signal line = EMA10 of (RVI)
There is also another, more complicated, way of computing RVI.
WMA1 = [(C n – O n ) + 2*(C n-1 – O n-1) + 2*(C n-2 – O n-2) + (C n-3 – O n-3)] / 6
WMA2 = [(H n – L n) + 2*(H n-1 – L n-1) + 2*(H n-2 – L n-2) + (H n-3 – L n-3)] / 6
RVI = WMA1 / WMA2
RVI Signal line = (RVI + 2*RVI n-1 + 2*RVI n-2 + RVI n-3) / 6
RVI Oscillator = RVI – RVI Signal line
n = the actual value
n-1 = the value 1 day ago
n-2 = the value 2 days ago
n-3 = the value 3 days ago
OHLC = Open High Low Close
If there is an Uptrend on the market, Close price will close Higher than Open price. It means Close will move near its High, while Open near the Low. The analogy is true for Downtrend.
How to use Relative Vigor Index:
- We can Buy on RVI crossings with its Moving average. As the RVI has been already smoothed before, it is more like two moving averages crossings.
- If the market moves sideways, we can Buy and Sell when RVI exits the overbought and oversold levels.
- The most reliable signals to go Short or Long are probably the combinations of RVI crossings with its Signal line and Positive/Negative divergences. If RVI created negative divergence with the price chart, we wait for RVI crossing with its Signal line (RVI downwards) and then we SELL. The analogy is true for Positive divergence + RVI crossing with the Signal line upwards.