Relative Vigor Index

Breathe a big sigh of relief. There is simply no indicator that is as simple to understand as the Relative Vigor Index. The RVI as it appears in your platform is constructed of two lines. The fast line represents the vigor of recent movements. The slow line represents a longer-term view of momentum created by major market participants.

You will find that MetaTrader, TradeStation, and proprietary forex trading platforms all offer the RVI as a simple addition to a forex chart.

Relative Vigor Index for Momentum

The Relative Vigor Index measure momentum, specifically, momentum that results from the “vigor” in the rate at which prices change. The formula below explains how the RVI is calculated for each period:

RVI = (Close – Open)/(High-Low)

So, let’s go through the formula really quickly. To calculate the numerator, subtract the open price from the closing price. Then divide by the difference of the high price minus the low price. Essentially, the RVI looks for the ratio of the change in price to the range of the high and low prices for the period.

The Relative Vigor Index then smooths out each reading with a simple moving average, so as not to rely too heavily on one period of data.

Trading the RVI

The RVI can be used like most momentum indicators to find:

• Overbought and oversold levels – Add horizontal trend lines on the RVI technical tool to set your own overbought and oversold levels.
• Crossover trading – The two fast and slow lines in the Relative Vigor Index indicate buying and selling points when the fast line crosses the slow line. This is similar to moving average crossovers, where a buying pattern is followed by a selling pattern; naturally, a selling pattern is then followed by a buying crossover.

Relative Vigor Index Settings

Traders who deploy the RVI use a few familiar settings. In general, most traders find RVI settings around 10 to be the most worthwhile. A 10-period setting is favorable for daily candlestick durations, as 10 days is equal to two weeks’ of trading days. The 13-period setting can be used too, and is often used for candlestick durations of one week. Thirteen weeks is equal to a full quarter of one year.