# What Is The Relative Volatility Index Indicator & How To Trade With It Relative Volatility Index (RVI) was developed by Donald Dorsey, not as an independent trading indicator but as a confirmation of the trading signals. It was first introduced in the journal “Technical Analysis of Stocks and Commodities” in June 1993. The redesigned indicator appeared in September 1995.

## What is Relative Volatility Index (RVI)?

The Relative Volatility Index is similar to the Relative Strength Index (RSI) but it shows the maximum and minimum prices of the standard deviation in a particular range. The Relative Volatility Index can range from 0 to 100 and, unlike many indicators, does not show price movement, but rather measures its strength.

The RVI is calculated in much the same way as the Relative Strength Index, but instead of price changes for calculations, a 10-day standard deviation of close price is taken here.

### Relative Volatility Index formula

S = Stddev [10 days] – standard deviation for a 10-day period

U = S if price> prev price – if the price is higher than the price in the previous period

U = 0 if price <prev price otherwise

EMA [W14] from U

RVIorig = 100 * ————-

EMA [W14] from S

EMA [W14] – exponential moving average in 14 days

RVIorig of highs + RVIorig of lows

RVI = ——— ————————-

RVIorig of highs – Relative Volatility Index highs

RVIorig of lows – Relative Volatility Index lows

If the data source does not provide high/low accuracy values, then StdDev for ten days is replaced by default with EMA for 14 days.

## How to use Relative Volatility Index indicator?

The relative volatility index was developed not as a separate indicator, but as a confirmation of trading signals. It was created to measure the direction of movement of volatility. It is most widely used in combination with a moving average; it does not repeat the signals of oscillators (RSI, MASD, stochastic oscillator, rate of change, etc.), but can be used to confirm them. Dorsey believed that many trading systems could be improved by using this indicator as a filter.

You can use the overbought and oversold areas to trade using the Relative Volatility Index. For this, you have to observe in the history of the chart to find the areas of oversold and overbought. For example, the chart below shows that 65 is the overbought area while 35 is the oversold area.

You can use the Relative Volatility Index to spot price divergence and trade it. Divergence appears when there is disagreement between the direction of price and the indicator.

## Relative Volatility Index trading strategy

A simple trading strategy is presented here. However, you may add other trend trading indicators for further information.

### Relative Volatility Index buy strategy

• You can buy if the Relative Volatility Index is above 50.
• If the first buy signal is missed, we can buy it when the Relative Volatility Index is above 60.
• We could close a long position when the Relative Volatility Index falls below 40.