Indicators  |  JAN 2002

Relative Vigor Index by John F. Ehlers

Relative Vigor Index by John F. Ehlers Here’s an old concept brought to light using modern filters to make it a practical, useful indicator. Since the inception of STOCKS & COMMODITIES (happy 20th anniversary year!), there have been several developments in technical analysis that have merged old concepts with new technologies. Like the magazine itself, the indicator discussed here will also be merging the old and new. The relative vigor index (RVI) uses concepts dating back to the beginning of this magazine and also uses modern filter and digital signal processing theory to realize those concepts as a practical and useful indicator. The idea behind the RVI is basic — prices tend to close higher than they open in up markets and close lower than they open in down markets. The vigor, or energy, of the move is thus established by where the prices end up at the close. To normalize the index to the daily trading range, divide the change of price by the maximum range of prices for the day. Thus, the basic equation for the RVI is: RVI = (Close-Open) / (High-Low) As you can see, the formula resembles that of an oscillator.

by John F. Ehlers