Relative Vigor Index (RVI)

The Relative Vigor Index (RVI) is a tool that helps traders understand the strength behind a price trend. Introduced by John Ehlers, a well-known expert in technical analysis, RVI measures the "confidence" of the market's current direction. It shows whether buyers (bulls) or sellers (bears) are in control, helping you decide when to enter or exit trades.

How Does RVI Work?

RVI calculates the relationship between the closing price and the opening price over a set period. The basic idea is simple:

• Bullish Movement. If the closing price is significantly higher than the opening price, it indicates strong buying pressure.

• Bearish Movement. If the closing price is much lower than the opening price, it shows strong selling pressure.

The formula for RVI is:

mathematicaCopy codeRVI = (Close - Open) / (High - Low)

How to Read the RVI

• Positive Values: when RVI is above zero, it suggests that buyers are stronger, indicating an upward trend.

• Negative Values: when RVI is below zero, it means sellers are in control, pointing to a downward trend.

• Crossing Zero: when the RVI crosses above zero, it can be a signal to buy. When it crosses below zero, it might be time to sell.

• Histogram Peaks: tall bars in the RVI histogram show strong momentum, while smaller bars indicate weakening momentum.

Using RVI in Trading

1. Spotting Trends:

   • Uptrend: When RVI stays above zero and the histogram bars are rising, it indicates a strong uptrend.

   • Downtrend: When RVI remains below zero and the histogram bars are falling, it signals a strong downtrend.

2. Identifying Reversals:

   • Bullish Reversal: If the price is going down but RVI starts to rise, it could signal a potential upward reversal.

   • Bearish Reversal: If the price is rising but RVI begins to fall, it might indicate a downward reversal.

Practice Exercise

Let’s get some hands-on experience with RVI:

1. Set Up the Indicator:

   • Open your trading platform.

   • Add the Relative Vigor Index to your chart. It usually appears as a line or histogram below your price chart.

2. Identify Signals:

   • Watch for when the RVI crosses above or below the zero line.

   • Look for rising bars in the histogram to confirm strong trends.

3. Make Demo Trades:

   • Use RVI signals to enter and exit trades on a demo account.

   • For example, buy when RVI crosses above zero and sell when it crosses below.

4. Analyze Your Trades:

   • Track how often these signals lead to profitable trades.

   • Adjust your strategy based on what you observe.

Reminder: Don't forget to check the Vocabulary if you see terms that you don't know.