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Ehlers Relative Vigor Index (RVI)

The Relative Vigor Index (RVI) was described in the January 2002 edition of Technical Analysis of Stocks and Commodities magazine in an article titled, "Something Old, Something New - Relative Vigor Index (RVI)" by John Ehlers. The RVI merges the older concepts of technical analysis with modern digital signal processing theory and filters to create a practical and useful indicator.

The basic principle behind the RVI is simple - prices tend to close higher than they open in up-trending markets and close lower than they open in down-trending markets. The energy (vigor) of the move is thereby established by where the prices end up at the close. The RVI is essentially based on the measure of the average difference between the close and open, normalized to the average daily trading range. The end result is a responsive oscillator with crisp turning points that is basically in phase with the cyclic component of market prices.

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Interpretation

The Relative Vigor Index is a unique indicator. The basic method of interpreting the RVI is to use the crossovers of the RVI and the RVI Signal Line. A buy signal occurs when the RVI crosses above the RVI Signal Line and a sell signal occurs when the RVI crosses below the RVI Signal Line.

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