An oscillator similar to the Relative Strength Index (RSI) and measures the direction of volatility.
Overview
The Relative Volatility Index (RVI) was developed by Donald Dorsey. It was originally introduced in the June 1993 issue of Technical Analysis of Stocks and Commodities magazine (TASC). A revision to the indicator was discussed in the September 1995 issue.
The RVI is very similar to the Relative Strength Index (RSI) index except that the RVI measures the direction of volatility using the standard deviation of price changes in its calculations rather than absolute price changes like the RSI does.
RVI plotted on the AUD/NZD Daily Chart 4/3/2011
Source: VT Trader
Interpretation
The RVI is best used as a confirmation indicator to other momentum and/or trend-following indicators. Dorsey recommended the following rules for using the RVI:
* Only act on buy signals when RVI > 50.
* Only act on sell signals when RVI < 50.
* If a buy signal is ignored, enter long if RVI > 60.
* If a sell signal is ignored, enter short if RVI < 40.
* Close a long position if RVI falls below 40.
* Close a short position if RVI rises above 60.
