Building a Relative Volatility Index from Directional Standard Deviation

Summary

This short indicator note presents a Relative Volatility Index (RVI) construction that adapts the RSI calculation to volatility. It weights standard deviation over ten closing-price days by whether the current close is above or below the previous close, smooths the upward and downward components with Wilder averages, forms their ratio, and transforms that ratio to an oscillator on an RSI-like scale. The note includes a platform-specific formula for implementing the calculation.

The document characterizes the RVI as a tool for trading volatility, but gives no rules for interpreting its levels, entering or exiting trades, or managing risk. It also provides no backtest, performance data, parameter comparison, or evidence for its claim of historical profitability. As presented, the formula is an indicator recipe rather than a complete strategy, and its behavior will depend on the smoothing period and platform implementation.

Key ideas

• The RVI applies an RSI-style ratio to directional standard deviation rather than ordinary daily price changes.
• Upward and downward volatility components are derived from ten-day closing-price standard deviation and smoothed with Wilder averages.
• The ratio of the smoothed components is converted into an oscillator similar in scale to RSI.
• The note supplies an implementation formula but no entry, exit, or risk-management rules.
• It offers no backtest or measured support for the stated profitability claim.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.