Developed by Donald Dorsey, the Relative Volatility Index(RVI) is the Relative Strength Index (RSI) only with the standard deviation over the past 10 days used in place of daily price change. You can use the RVI as a confirming indicator as it makes use of a measurement other than price as a means to interpret market strength.
The RVI measures the direction of volatility on a scale from zero to 100. Readings >50 indicate that the volatility is more to the upside. Readings <50 indicate that the direction of volatility is to the downside. Initial testing by Dorsey has indicated that the RVI can be used in the same way as the RSI.
When testing the profitability of a basic moving average crossover system, Dorsey found results could be significantly enhanced by the application of a few rules:
- Only buy if RVI >50.
- Only sell if RVI <50.
- If you missed the buy at 50, buy long if RVI >60.
- If you missed the sell at 40, sell short if RVI <40.
- Close a long if RVI falls <40.
- Close a short if RVI rises >60.
The RVI is first published in the June,1993 issue of “Technical Analysis of Stocks and Commodities” magazine. A revision made in the September,1995 issue so that High and Low prices used in place of Close.
Calculation:
If Price >PrevPrice then
Ups= StdDev9(Price), Downs=0
else
Downs= StdDev9(Price), Ups=0
StdDev9(Price) = 9-period Standard Deviation value
Inputs:
Period = 14
Indicates time period(the number of days for daily analysis, the number of weeks for weekly analysis, etc.).
Indicator Type: Volatility