RVI indicator can be found in the list of market analysis tools, which are installed in the MT4 terminal by default. Today we will talk about how it can be used to determine the optimal entry points into the market.
How the RVI
worksRelative Vigor Index values are calculated as follows:
- In the beginning, the price of its opening is deducted from the price at which the last candlestick was closed.
- Then for the period specified in the settings determined by the maximum and minimum and calculated the difference between them.
- And finally, the value according to clause 1 is subtracted from the value according to clause 2.
In the end, the results of calculations in points 2 and 3 are used to build the indicator lines. One of them is green, the other is red. Green line indicates short-term trend, red line indicates long-term trend.
Relative Vigor Index Signals
They can be in three variants:
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- Crossing of indicator lines. It’s very simple here. If we see that the red line crosses the green line in the direction from bottom to top, we can solve the issue of opening a sell order. If the green line crosses the red line from bottom to top on the chart, you can buy it.
- Line position of the relative zero level. If both lines are above zero and the red line is above green – open sell order. If both lines are below zero and the red line is below green – open a buy.
- Divergence. If the price rises on the chart, and the indicator curves fall, it may indicate a rapid reversal of the movement – a signal for sale. If the price decreases on the chart, and the indicator curves grow – a signal to buy.
As we can see in this example, the next peak formed by the lines of the RVI indicator was lower than the previous one. At the same time, the price shows growth. Such a situation is considered as a signal for a probable change of direction, which happened in the future. Note that you should open a trade in such cases only after the green line lists the red line, as in my example.
Stop-loss rule is simple. We’re placing him at the nearest extreme. And the profits can be fixed in different ways. Take Profit can be set at the extreme level or equal to 2-3 stops. And the third variant of closing the order is when the opposite signal appears. Which one of them to choose is at the trader’s discretion. You can test each option on a demo account and make a decision.
RVI indicator is a useful analysis tool. It can be used as a basis for a trading strategy or as a filter.Fyodorov’s Inga26.09.2018