What RVI Truly Measures

The Relative Vigor Index (RVI) is a market strength indicator that measures the conviction behind price movements by analyzing the relationship between opening and closing prices relative to the overall price range. Unlike typical momentum indicators that focus purely on price direction, the RVI emphasizes the quality of movement.

At its core, the RVI evaluates whether a cryptocurrency is closing higher or lower relative to its intraday range. This mechanism assumes that strong upward movements will have closing prices closer to the high of the period, while strong downward movements will close near the low. By measuring this relationship over multiple periods, the RVI reveals whether the market sentiment is genuinely strong or weak.

The indicator consists of two lines: the RVI line and its signal line (a moving average of the RVI). The calculation involves comparing the difference between close and open prices to the total range (high minus low) over a given period, typically 10 periods. This ratio is then smoothed using a weighted moving average to generate the final values.

What makes the RVI unique is its focus on cyclical vigor rather than raw price change. It identifies periods of increasing or decreasing momentum in price action by detecting whether buyers or sellers are dominating the market consistently. When the RVI is rising, it suggests that upward price movements are backed by strong buying vigor, and declining RVI indicates selling pressure is more vigorous.

It's important to understand that the RVI does not predict price direction on its own. Instead, it quantifies the energy or strength behind existing trends. This makes it particularly useful in determining whether a trend has enough strength to sustain itself or if it's showing signs of exhaustion.

Traders often use RVI to confirm trends and spot potential reversals. Divergences between RVI and price action can indicate weakening momentum even when prices continue moving in the same direction.