Relative Volatility Index

The Relative Volatility Index indicator provides a momentum-based assessment of price volatility to identify overbought and oversold market conditions. By measuring the direction of volatility rather than just price change, it serves as a robust confirmation tool for trend strength and potential reversals.

Usage

The Relative Volatility Index (RVI) is used similarly to the Relative Strength Index (RSI), but it calculates momentum based on the standard deviation of price changes. Traders can use the indicator to:

• Identify Overbought/Oversold Zones: Values above the Overbought Level (default 60) suggest a potential bullish exhaustion, while values below the Oversold Level (default 40) suggest bearish exhaustion.
• Trend Confirmation: Readings above 50 generally indicate bullish momentum, whereas readings below 50 indicate bearish momentum.
• Breakout Highlighting: The script includes a visual feature to highlight when the RVI breaks into extreme zones, making it easier to spot potential entry or exit points.

Details

The RVI was originally developed by Donald Dorsey in 1993 and later refined in 1995. Unlike standard momentum oscillators that look at price differences, the RVI calculates the EMA of standard deviations during "up" days versus "down" days.

This specific implementation offers the "Refined" version of the RVI, which averages the RVI values calculated from the High and Low prices. Users can also toggle between Population and Sample standard deviation algorithms to fine-tune the sensitivity of the volatility measurement.

Settings

Main Settings

• Standard Deviation Length: Sets the lookback period used for the standard deviation calculation.
• Standard Deviation Type: Allows selection between "Population" (standard) or "Sample" calculation methods.
• Smoothing Length: Determines the period for the EMA smoothing of the volatility components.
• Overbought Level: The upper threshold for identifying overbought conditions (default is 60).
• Oversold Level: The lower threshold for identifying oversold conditions (default is 40).
• Use Refined Version of RVI?: When enabled, uses the 1995 refined calculation (average of High/Low RVI). When disabled, it uses the original 1993 version based on the selected Source.
• Highlight Overbought/Oversold Breakouts?: Enables background coloring when the RVI crosses the extreme levels.
• Source: The price input used for the original RVI calculation (typically "close").

FAQ

How do I interpret the RVI compared to the RSI?

While the RSI measures price velocity, the RVI measures the direction of volatility. If the RVI is rising, it means the volatility of upward moves is outweighing the volatility of downward moves.

What is the difference between the Original and Refined RVI?

The original version uses a single price source (like Close), whereas the refined version averages the results of RVI calculations performed on both the High and Low prices for a more comprehensive view of the bar's range.

How can I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.