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Relative Volatility Index (RVI)

Donald Dorsey worked out the Relative Volatility Index (RVI), which is the RSI, only with the standard deviation over the past 10 days used instead of everyday price fluctuations. The RVI is usually used as a fixing indicator, because it measures in other way than price and it has the aim to interpret forex market strength.

It is usually used at the scale from 0 to 100 to find out the direction of volatility during the RVI's measurements. The volatility is more to the upside, when it is comes over the 50's mark on the scale. The direction of volatility is to the downside, when it falls lower than the 50's level on the scale.

Dorsey's first test showed that the RVI could be used as the RSI. But later Dorsey's test of the profitability of a basic moving average crossover system indicated that there could be improved 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.

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