A technical indicator based on the premise that during an uptrend, the closing price is usually higher than the open price. Conversely, during a downtrend, the closing price is usually lower than the open price. The calculation formula is:
RVI = (Close – Open) / (High – Low)
For further smoothing, a 10-period Simple Moving Average may be applied on the resulting RVI. Furthermore, a 4-period Signal Line may be constructed by applying a Symmetrical Weighted Moving Average on RVI.
A potential buy signal is triggered when there is a positive divergence between the oscillator and price, especially when RVI is in extreme oversold territory. Conversely, a potential sell signal is in place when there is a negative divergence and RVI is in extreme overbought territory.« Back to Glossary Index