If you are looking for a simple way to spot possible price reversals, you can plot the Relative Vigor Index (RVI) on your Forex charts.
This guide will teach you how to use crossovers and divergence to trade with the RVI. But first, we will explain to you exactly what the Relative Vigor Index is and how it is calculated.
The Relative Vigor Index is an oscillator. As its name implies, its purpose is to help you visualize the relative vigor of the market.
You can use it to get a feel for what is taking place with a trend, and to try and gauge when a trend may be changing directions.
Key point: The RVI shows you a market's relative vigor.
Below, we are going to show you the formula used to calculate the Relative Vigor Index. If you are mathematically-minded, you can follow it easily enough. If you are not, it might look daunting.
It helps to understand the basis for the Relative Vigor Index, which is the following set of observations:
The formula for the indicator's main two lines looks like this:
You will be grateful to know you do not need to carry out any of these math calculations yourself. If you have MetaTrader 4, this software will take care of all of the math in the background for you when you plot the indicator on your charts.
Key point: The RVI is calculated on the basis of how price usually closes in uptrends and downtrends.
When an uptrend is strong, the lines of the RVI also tend to be moving upward. When a downtrend is strong, the reverse is true.
If you see divergence, that means a trend may be weakening, which could precede a reversal.
Key point: The RVI helps you figure out how strong a trend is, and whether a reversal may be impending or occurring.
You can plot the Relative Vigor Index on your Forex charts in MetaTrader in just a few quick steps:
Key point: It takes just a few quick clicks to add the Relative Vigor Index to your charts in MT4.
Once you have plotted the Relative Vigor Index, you can use it to trade. Let's go over the two most common ways to use the RVI.
One way to trade using the Relative Vigor Index is to look for crossovers between the red and green lines.
The other common way to use the Relative Vigor Index for Forex trading is to look for divergences between price movement and the indicator:
Key point: You can use the RVI in your trading by looking for divergence or crossovers.
Key point: Like any other indicator, the Relative Vigor Index has its limitations. The tips above can help you work around them.
The Relative Vigor Index helps you get in on reversals. The indicator makes it easy to visualize the relative energy of the markets. By looking for crossovers or divergence, you can get in on new trends at reversal points.
For best results, use it in trending markets, look for confluence, and test your trading method thoroughly on demo before going live.
You can discuss the Relative Vigor Index indicator and its application in Forex trading on our forum for traders.
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