Relative Vigor Index
Last updated
Last updated
The Relative Vigor Index (RVI) is a momentum oscillator that measures the strength of a trend by comparing a security’s closing price to its trading range. It was developed by Donald Dorsey and is based on the premise that prices tend to close higher than they open during uptrends and lower during downtrends. Unlike some other momentum indicators, RVI attempts to smooth out price movements to reduce market noise, using a simple moving average (SMA) of the price changes.
RVI is designed to closely resemble the MACD, but instead of using price, it focuses on the relationship between the close and the open relative to the range between high and low.
The RVI formula is as follows:
This value is then smoothed using a simple moving average, typically over 10 periods. A signal line — which is a 4-period SMA of the RVI — is also plotted to generate crossovers, similar to how a MACD signal line is used.
In a chart, the RVI is displayed as two lines:
RVI line – represents the smoothed momentum
Signal line – used for confirmation of potential trend changes
The RVI fluctuates above and below a centerline (usually 0), and traders interpret it in the following ways:
RVI crosses above the signal line: potential bullish signal
RVI crosses below the signal line: potential bearish signal
RVI stays above zero: bullish bias
RVI stays below zero: bearish bias
Divergence between RVI and price: possible trend reversal
Crossovers and divergences are the most common ways to interpret the RVI, especially when confirmed by price action or volume indicators.
The default and widely accepted settings for the RVI are:
RVI period: 10
These settings work well across various markets and timeframes, but they can be adjusted depending on the trader's strategy and asset volatility. Shorter periods make the indicator more responsive but noisier; longer periods offer smoother signals but may lag.
RVI can be integrated into trading strategies in multiple ways:
Buy when the RVI crosses above the signal line below the 0 level.
Sell when the RVI crosses below the signal line above the 0 level.
Use RVI direction and its position relative to zero to confirm the trend.
For instance, when price is rising and RVI is above zero, the uptrend is considered strong.
If the price makes higher highs while RVI makes lower highs, it could signal a weakening trend and potential reversal (bearish divergence).
Vice versa for bullish divergence.
Combine RVI with MACD, RSI, or Stochastic Oscillator for better decision-making.
Volume-based indicators can help confirm the strength of RVI signals.
Ignoring context: RVI should not be used in isolation; it’s more powerful when combined with other tools or price action analysis.
Overreacting to noise: Too short of a period makes the RVI sensitive to small price movements, causing false signals.
Assuming crossover = reversal: Not all crossovers lead to trend reversals; confirmation is key.
Not adjusting for volatility: Different assets behave differently—always test RVI settings for your market.
The Relative Vigor Index is a reliable momentum indicator that adds clarity to price movements by focusing on closing strength relative to the trading range. It’s best used with other indicators and works well in trend-following and reversal strategies.
While RVI may lag in fast-moving markets, its smoothing effect makes it valuable for traders who prefer a cleaner signal and reduced noise. Whether you’re a swing trader or a day trader, integrating the RVI into your toolkit can provide deeper insights into market momentum and potential trend changes.
