Relative Vigor Index (RVI) calculation is based on the idea that in a rising market the closing price is usually higher than the opening price, and on the bearish market the closing is usually below the opening price.
To normalize the index the price fluctuation is divided by the maximum price range within the bar:
Relative Vigor Index (RVI) formula:
RVI = (CLOSE – OPEN) / (HIGH – LOW)
OPEN – open price;
HIGH – the highest price;
LOW – the lowest price;
CLOSE – close price.
To eliminate occasional price fluctuations (so called “noise”) the Relative Vigor Index (RVI) oscillator is smoothed by the 10-period simple moving average. A signal line is also formed as a 4-period moving average on the oscillator values.
The basic signals of Relative Vigor Index (RVI) are:
Bullish divergence / bearish convergence – the main signal pointing to the weakness of the current trend; A good moment to open a sell / buy position is the crossing of the RVI line by the signal line from above/below once the bullish divergence / bearish convergence has appeared on the chart; In a flat market an exit from the overbought / oversold area is a signal to sell / buy.
To add Relative Vigor Index in MetaTrader 4 use the “Insert -> Indicators -> Oscillators -> Relative Vigor Index menu sequence.