There is an indicator that can provide valuable insights by analysing the daily opening and closing prices of assets. That is none other than the Relative Vigor Index indicator. It’s an amazing indicator and is widely used in trading. However, its effectiveness in crypto trading remains uncertain due to the cryptocurrency market’s 24/7 operation and fixed opening and closing times at 00:00 UTC. Nevertheless, RVI or RVGI can still be applied effectively in a crypto market with a strong trend. Let’s delve into the world of the RVGI to learn more.
The Relative Vigor Index indicator is a vital crypto market tool. It measures trend strength by comparing a crypto’s closing price to its price range, and then smoothes this data using a Simple Moving Average.
Precisely, it is like checking if a crypto’s recent closing prices are consistently higher or lower compared to its overall price range, indicating the strength of the current market trend.
In a Relative Vigor Index indicator, you typically see two lines:
Here is a simple breakdown of how to calculate the Relative Vigor Index indicator.
RVI – (Close – Open) / (High – Low) |
This process provides you with the RVI values, which indicate the strength of the trend in the crypto market.
The Signal Line for RVI is typically a 4-period SMA applied to the RVI values. To calculate this:
The most common use of RVI in trading analysis is RVI Crossovers and RVI Divergence.
Look for the RVI line crossing above the signal line. This suggests that the price is likely to rise.
Conversely, if the RVI line crosses below the signal line, it indicates a potential price decline.
The reliability of these signals is higher when the RVI line is far from the center zero line.
For a bullish divergence, check if the price creates lower lows while the RVI forms higher lows. This suggests a potential upward price movement.
In contrast, a bearish divergence occurs when the price makes higher highs, but the RVI forms lower highs. This indicates a potential price decrease.
While the Relative Vigor Index is a highly valuable tool for crypto trading beginners. It is extremely important to remember that it is not foolproof. Market conditions can change unexpectedly, and RVI has its limitations. Use it as part of a comprehensive trading strategy.
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