The Relative Vigor Index (RVI) is an oscillator offered by default on the MetaTrader platform, as well as on other trading platforms. While it is not that famous like the Relative Strength Index (RSI), it has some advantages when looking for a clear signal to trade.
Having said that, it doesn’t mean that it is better than the RSI, only that it shows some other information in addition to the ones the RSI is showing. We know by now that the RSI shows overbought and oversold levels, and the classical way to trade with it is to buy when the oscillator is in an oversold area and sell when it is in an overbought one.
However, frequently price is staying in those areas for a long time before reversing, and the result is traders being trapped and losses are incurred in the trading account. To avoid this, using divergences between price and RSI is recommended.
The previous articles here on ForexGator.com show how to trade with the RSI, so just feel free to browse through them and discover the possibilities a trader has. It is pretty straight forward.
However, the vast majority of forex traders are struggling with their trading, meaning trading classical ways like; buying oversold and selling overbought levels are not really working in the long run. Something else must be brought into equation.
The RVI has one big advantage over the RSI, and this is visibility. Signals offered are visible, and this leaves little room for error in interpreting it.
Before discussing the ways to trade with this oscillator, we need to know where to find it. By clicking the Insert tab and going to Indicators and Oscillators, the RVI can be selected.
Next, a pop-up window appears with the possibility to edit the two lines that make up the oscillator; the RVI and the signal line. In a way, the signal line has the same role like the signal line in the Stochastic oscillator.
By clicking the OK tab, the oscillator is plotted on the bottom of the screen and it is looking like the image below. As you can see, the zero level plays a pivotal role, and it is going to be a central piece when trading with the RVI.
3 Ways to Trade with RVI
The above chart shows the EURUSD daily time frame, having the RVI plotted at the bottom of it. The period the oscillator considers, is the default one, ten.
This means that it is looking at the last ten candles (days) before plotting the values. Moreover, the RVI is an oscillator that is NOT repainting (repainting means the oscillator’s old values are changing based on new data).
Trade with the Signal Line
The classical interpretation and trading way is to use the signal line (the green one) to buy or sell when it is crossing above or below the main RVI line (the red line). This technique is straightforward and has the advantage of being extremely visible.
In other words, it is impossible to miss the entering of a trade! The chart below shows the signal line offering great entries, both on the long side and on the short side, entries given by the green line crossing below or above the red one.
Use Divergences to Find the Perfect Entry
Divergences are a great way to find the perfect entry into a trade, and they are working just fine with the RVI too. As a matter of fact, divergences are working with any oscillator, not only with the RVI, only that the RVI has the signal line to show you exactly when to enter the trade.
Above you can see a classical bullish divergence forming on the same EURUSD daily timeframe, with the green signal line giving the perfect entry for a nice trend reversal. Keep in mind that, if one must choose between price and oscillator’s moves, the oscillator is the one that gives the right direction.
It is only normal, as it is considering more candles than the actual price (in this case, ten candles). The RVI period can be changed, but the more candles are considered, the flatter the pattern becomes.
Trade the Zero Level as a Continuation Pattern
As mentioned earlier, the zero level plays an important role with the RVI as the oscillator has a strong tendency to continue the trend when crossing it. Therefore, adding to a position is indicated, with the exit being when the signal line is crossing below or above the red line.
In strong trends and bigger time frames, this makes a great opportunity for adding to a trade. As a rule of thumb, the bigger the time frame, the more powerful the signal is.
The next article will deal with different ways to trade forex with the MACD indicator. MACD is extremely popular among traders, and we’re going to see exactly why.