Relative Vigor Index - A Comprehensive Guide for Beginners

The Relative Vigor Index (RVI) is a technical analysis tool that measures a financial asset's momentum. It was developed by John Elder and is based on the concept that prices tend to close higher than they open during an uptrend and vice versa during a downtrend.

The RVI is calculated by comparing the closing price of an asset to its opening price. It then takes the difference between these two prices and divides it by the asset's trading range over a certain period. The RVI is plotted as a line graph, and it moves above and below a centerline to indicate bullish or bearish momentum.

The Relative Vigor Index is calculated using the following formula:

RVI = (Close - Open) / (High - Low)

The resulting value is then smoothed using an exponential moving average of n periods (usually 10), further improving its accuracy and effectiveness.

When analyzing RVI, it is important to keep in mind that values above the centerline indicate bullish momentum, while values below the centerline indicate bearish momentum.

Traders can also look for divergences between the RVI and the price chart, which can indicate a potential trend reversal. For example, if the RVI is making lower highs while the price chart is making higher highs, it could be a sign of weak bullish momentum that may lead to a trend reversal.

Another useful application of the RVI is as a confirmation tool for other technical analysis indicators. For instance, if the RVI confirms a bullish trend identified by the Moving Average Convergence Divergence (MACD), it can enhance the trader's confidence in the validity of the trend.

The RVI can be used in a variety of trading strategies. One popular approach is to use the RVI as a trend-following indicator, entering a long position when the RVI crosses above the centerline and a short position when it crosses below the centerline.

Another strategy is to use the RVI in combination with other technical analysis tools like support and resistance levels, chart patterns, and volume indicators. By incorporating these tools, traders can make better-informed trading decisions and increase their profits.

However, it is important to keep in mind that the RVI is not infallible and should not be used in isolation. Traders should always use it in conjunction with other indicators and perform thorough market analysis before making any trading decisions.

Relative Vigor Index is a useful tool for measuring the momentum of a current trend in trading. It is calculated by comparing the opening and closing prices of an asset and taking the difference between them. The resulting value is smoothed using an exponential moving average. Traders can use RVI in combination with other technical analysis tools to make better-informed trading decisions. However, it is important to use the RVI in conjunction with other indicators and perform thorough market analysis before making any trading decisions.

By following the tips and strategies outlined in this guide, traders can effectively use the RVI to enhance their trading success.