Indicator "relative vigor index" developed by John Eilers. First learned about the indicator in 2002, so it is relatively new and, perhaps, not yet revealed its full potential. This indicator refers to the type of oscillators. The basis was taken indicator known postulate of the forex market - with a growing market closing price above the opening, and in a down market, the price closes below the opening point. The same principle is applied to other oscillators (Momentum, Stochastic Oscillator).
The indicator is calculated:
For the calculation of the numerical values of the indicator RVI need one formula. Therefore, the calculation is easy. The components of the formula:
Close - close price of candle
Open - opening price of candles
Low - the minimum price of candles
High - up candles
You may have noticed that the calculation of an index of relative vigor similar stochastic calculation.
Description of indicator RVI:
The main purpose of the index of relative vigor, this measure of confidence of the current price movement and the possibility of its extension.
The indicator consists of two lines with. Feature of this indicator is that in contrast to other oscillators, it does not show overbought and oversold zones.
Green (see photo) is a faster line indicator, which displays the energy market flow. If the green line above $ 0, this means that the closing price is above the opening and at the same time shows the balance of power of the market crowd.
The red line has the same properties as the green line, but it shows the balance of power for a longer period. Thus, the two lines that are not within the meaning can not be distinguished, but with different time periods, make the indicator more accurate.
When the green line (fast) is higher than the red, it means that the market has the advantage of consumers, so at the moment we can only buy. If the market is the opposite situation, that is to open short positions.
Using the index of relative vigor:
The indicator has two types of signals: direct and confirming. It was originally created for the trade between the trading range, so do not use it signals with highly noticeable trend.
Direct signals.
The main signal to enter the market is the intersection of two lines of the indicator. Intersection of the mean change in the market cycle, so the conclusion must be the same order with the current cycle. Buy signal is crossing green (fast) line crosses the red bottom up. Set the stop - loss for reinsurance below the last local minimum. Opposite the intersection of the red line of the green is a signal to sell. Stop - loss should be set at the last local maximum.
Confirming signals:
Index of relative vigor can confirm the presence and duration of a trend. If the market is rising trend , the performance indicator should also grow. This can be simply explained - in an uptrend the closing price increases relative to the point of opening, so the indicator is growing. So it is with a downward trend, but the indicator should fall.
Shortcomings and conclusions:
RVI indicator disadvantages are the same as all oscillators. Index of relative vigor gives many false sell signals in the presence of the upward trend, respectively, it gives a lot of false signals to buy in a downtrend. But from this we can conclude that trade on the indicator RSI is necessary only in accordance with the current trend, so you will save yourself from unwanted money loss.
Some of the LED may seem useless, but every trader should be able to withdraw all of the information from all sources for the accurate prediction and the indicator is not the worst option for forecasting. I think that this indicator is not fully opened and soon wakes up about it a lot more known than at present. All new information on indicators wakes immediately available at our website.