Even your neighbor Bill knows that in an uptrend, the price closes higher than the opening price, and in a downtrend, closes lower than the opening price. This RVI Indicator, or Relative Vigor Index, is a momentum indicator and is based on the higher probability of price closing higher, than where it opened in an uptrend, and closing lower than where it opened in a downtrend. That’s good and all, but what’s the point of using the RVI indicator? Even though RVI looks like a Stochastic Indicator at first glance, it does not have the upper and lower bands. Instead, it oscillates around the zero line. When the RVI line is above its zero line, it’s an uptrend. And when the RVI line crosses below the zero line, it’s a downtrend.
But since the RVI line oscillates around the zero line, the Relative Vigor Index generates two different kinds of entry signals.
You see, in a strong uptrend, the price makes a move in the upward direction, then slows down a little, and makes a strong move in the upward direction again. In one of the widely used RVI strategies, you buy when the RVI line crosses above the signal line, only if the crossover is above the zero line. That makes sense because the RVI line above the zero line indicates an uptrend. But this strategy is only good if the price is really in a strong uptrend because when you buy at the RVI crossover above the zero line, you will most likely buy near the top of the trend. This makes the RVI strategy better for catching the small moves in the direction of the strong trends. Otherwise, buying at the top will lead to unnecessary losses in the long run.
But many people who are subscribed to the Trading Rush Channel, don’t like to buy, at the top of the uptrend. Many traders, especially those who are using strategies like the MACD are buying when the pullback is big, so the price has enough room to move in the upward direction before reaching the swing high resistance, and resulting in a higher probability of winning in the long run.
To only buy when the pullback is big, many traders buy when the RVI line crosses above the signal line, below the zero line. Remember, the RVI indicator is used to find the short term trend direction, and not the long term trend, But when you use a longer period moving average like the 200 Exponential Moving Average to find the trend direction, the price above the 200 period moving average, and the RVI below the zero line, indicates a temporary downward momentum in a long term uptrend.
When the RVI value is below the zero line, a Long RVI crossover indicates a potential end of the pullback and a signal to buy.
The short setup is just the opposite of the long setup. And in both the first and second RVI strategies, the stoploss can be set using the pullback of the trend.
To find the win rate of the RVI Trading Strategy, we will have to test it 100 Times in the next video.
That’s all.
