Relative Volatility Index: Calculation and Trading Signals

Summary

The Relative Volatility Index (RVI) estimates whether volatility is associated with rising or falling prices. It calculates price standard deviation over a chosen period, assigns that volatility to an upward or downward component based on the close-to-close direction, smooths the components, and expresses the upward share on a 0–100 scale. The document describes configurable lookback and smoothing periods, overbought and oversold reference levels, and optional moving average and Bollinger Band overlays.

Suggested uses include confirming a trend with a rising or falling RVI, watching for divergence from price, and treating moves beyond 80 or below 20 as possible extremes. Crosses of the RVI and its moving average, or RVI band breaks alongside price breakouts, are presented as signal ideas. A ProRealTime implementation illustrates the calculations and display options, but the document provides no performance tests. It cautions that the indicator should be combined with other analysis rather than used alone; threshold readings and divergences are not established as reliable reversal forecasts.

Key ideas

• The RVI separates standard deviation into upward and downward components according to the direction of the close.
• The smoothed upward component as a share of total directional volatility produces a reading between 0 and 100.
• A rising or falling RVI can be used to support a trend assessment, while divergence may suggest weakening movement.
• The document proposes moving average crosses and Bollinger Band excursions as additional signal ideas.
• The document offers no backtest evidence and advises against relying on the RVI in isolation.

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