Relative Vigor Index (RVI) is a technical indicator that measures the strength of a trend by comparing the closing price of an asset to its trading range over a given period. The RVI is an oscillator that fluctuates between 0 and 100, with values above 50 indicating a bullish trend and values below 50 indicating a bearish trend. The RVI was developed by John Ehlers and introduced in his book “Rocket Science for Traders” in 2001.
Why Is It Important?
The RVI is an important technical indicator because it helps traders identify the strength of a trend. By measuring the strength of a trend, traders can make more informed decisions about when to enter or exit a trade. The RVI is also useful for identifying potential trend reversals.
How To Work With It?
Traders could work to use the RVI in a number of ways. One common method is to look for divergences between the RVI and the price of the asset. A bullish divergence occurs when the RVI is making higher lows while the price of the asset is making lower lows. This can be a sign that the trend is about to reverse. A bearish divergence occurs when the RVI is making lower highs while the price of the asset is making higher highs. This can also be a sign that the trend is about to reverse.
Another way to use the RVI is to look for crossovers between the RVI line and a signal line. A bullish crossover occurs when the RVI line crosses above the signal line, while a bearish crossover occurs when the RVI line crosses below the signal line. Traders can use these crossovers as signals to enter or exit a trade.
What Are The Best Practices For Using It?
Traders should use the RVI in conjunction with other technical indicators and fundamental analysis. They should also use it in combination with other tools such as trend lines and support and resistance levels. Traders should also be aware of the limitations of the RVI and should not rely on it exclusively to make trading decisions.
Advantages and Disadvantages
Advantages
The RVI has several advantages for traders. It is a leading indicator, which means that it can help traders identify potential trend reversals before they occur. It is also easy to use and can be customized to suit the needs of individual traders.
Disadvantages
The RVI has some disadvantages as well. It can generate false signals, especially in choppy markets. It can also be slow to respond to sudden changes in market conditions.
How to Trade with Relative Vigor Index Indicator
Buy Entry
- Look for a bullish divergence between the RVI and the price of the asset. This occurs when the RVI is making higher lows while the price of the asset is making lower lows.
- Wait for the RVI line to cross above the signal line.
- Enter a long position when the RVI line crosses above the signal line.
- Place a stop-loss order below the recent low.
- Place a take-profit order at a predetermined level or use a trailing stop to lock in profits.
Sell Entry
- Look for a bearish divergence between the RVI and the price of the asset. This occurs when the RVI is making lower highs while the price of the asset is making higher highs.
- Wait for the RVI line to cross below the signal line.
- Enter a short position when the RVI line crosses below the signal line.
- Place a stop-loss order above the recent high.
- Place a take-profit order at a predetermined level or use a trailing stop to lock in profits.
Relative Vigor Index Indicator Settings
Conclusion
Relative Vigor Index Indicator is a useful tool for traders who want to identify the strength of a trend and potential trend reversals. Traders should use the RVI in conjunction with other technical indicators and fundamental analysis. They should also be aware of the limitations of the RVI and should not rely on it exclusively to make trading decisions.
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