The Relative Vigor Index is a technical analysis indicator that’s classified as an oscillator. Its primary role is the comparison of the asset’s closing price to how strong a trend is and the smoothing the results. The idea behind the use of this indicator is that the closing prices are usually higher than the opening prices in uptrends. For downtrends, it’s the opposite where the closing prices is lower than the opening prices.
Three lines characterise this indicator, and these are (Try out indicators on Tradingview.com) :
• The signal line
• The Relative Vigor Index (RVI) line
• The neutral line
When Should You Use The Relative Vigor Index?
Traders use this indicator in cases where an asset’s price is either overbought or oversold. In cases where the asset is oversold opens up great buying opportunities, and if overbought signals an ideal chance to sell or short.
Like other indicators that have similar lines, the two main sections to look at are when the RVI line and the signal line cross the neutral line. Another opening to either buy or sell an asset is when the signal and RVI line cross each other.
The Relative Vigor Index (RVI) | Indicator Series Click To TweetHow Do You Interpret The Relative Vigor Index?
The interpretation of the RVI indicator is similar to that of most oscillators, such as the Relative Strength Index or Moving Average Convergence-Divergence (MACD). This means it swings across the centre line to signal when the market is oversold or overbought and convey signals when this differs from the price chart.
Traders use the RVI to exit an oversold or overbought area, so it offers guidance on an appropriate time to buy or sell. However, it doesn’t provide precise levels of these oversold or overbought regions, so it’s up to the traders to pick these areas on their own. While using the RVI indicator, traders need to remember that these oscillators can last at certain extreme levels for an extended duration. Therefore, the interpretations should consider a broad range of context for it to be useful.
Takeaway The Relative Vigor Index is a useful technical analysis indicator to identify the best time to enter or exit a trade. But for maximum effectiveness, it’s best used alongside other trading tools and indicators primarily because it might provide false pointers in range-bound markets. All in all, it’s an excellent indicator for analysing trending markets.
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