Relative Vigor Index Trading

Relative Vigor Index Trading Strategy or RVI for short is a popular trading oscillator. At the first glance, the Relative Vigor Index looks similar to the Stochastics oscillator as the RVI consists of the RVI signal and the RVI Main line. The Relative vigor index is a momentum indicator which calculates the closing price in comparison to the opening price of the look back period. The RVI oscillates within the zero-line and buy and sell signals are triggered when the RVI main line crosses below the RVI signal line when it is above zero and the opposite when the RVI is below the zero line.

The chart below shows the RVI oscillator and it is shown in comparison to the line chart. The highlighted points infer to the turning points in the market signaled by the RVI indicator. Besides signaling the turning points, the Relative Vigor index can also be used to spot divergences in the markets as shown on the chart.

The default setting for the Relative Vigor Index is 10 but the settings can be played with depending on a trader’s preference and the market they are applying the RVI oscillator to.

Relative Vigor Index Trading Strategy

The RVI oscillator can be traded in different ways. Here are some of the commonly applied methods to using the RVI oscillator.

RVI Divergence: Similar to how one would trade divergence with any oscillator; the RVI can also be used to spot divergences to price. When prices make a significant high or a low but the RVI fails to confirm these higher or lower highs and lows, the markets can be exploited for the short term. Refer to Stochastics divergence to learn more on trading with divergence.

RVI 0-line: The RVI 0-line can be used as a support/resistance level in itself. For example, when the RVI dips below the 0-line and then rallies back to the 0-line but fails and turns lower, near the 0-line, that signals a short term resistance in the market indicating prices are heading lower. Likewise, when the RVI oscillator rises above the 0-line but pulls back to the 0-line and turns again, it signifies that price is at a support level and that the markets could potentially push higher in the near term.

Relative Vigor Index as Support/Resistance Indicator

In the above chart, notice how the RVI’s 0-line failure has signaled support/resistance on the chart. Combining this with the divergences, the RVI oscillator can be used as a powerful trading system in itself.

Relative Vigor Index as a confirmation: The Relative Vigor Index can also be used alongside other indicators such as moving averages or Bollinger bands and the turning points in the markets could be used to take long or short signals. The chart below shows the RVI confirming buy and sell signals when used alongside the Bollinger bands on price. When prices are rejected by the outer Bollinger Bands, and the RVI signals a turnaround, long and short set ups can be taken, targeting the middle Bollinger Band.

Relative Vigor Index with Bands

Relative Vigor Index Trading – A powerful trading strategy

As illustrated in the above charts, the RVI is a powerful trading oscillator that can be used all by itself in order to trade. Using the RVI for buy/sell signals requires quite a bit of practice and is therefore not recommended for beginners. And for experiences traders a bit of practice is required before you start applying the RVI to your trading.