Relative Volatility Index

The Relative Volatility Index is similar to the Relative Strength Index except that RVI is based on the standard deviation of high and low as opposed to the RSI which is based on the current and previous day's closing prices.  This technical indicator was introduced in the May edition of Technical Analysis of Stocks & Commodities:  "The Relative Volatility Index" by Donald Dorsey.

Relative Volatility Index Calculation

The Relative Volatility Index is calculated by first computing rolling standard deviations for the daily highs and then calculating rolling standard deviations for the daily lows. Then each of these lines are smoothed by an Exponential Moving Average. The indicator is then calculated as the smoothed standard deviation of high values divided by the sum of the smoothed standard deviations of high and low values.  The Relative Volatility Index takes two parameters. The first parameter is the period used to calculate the standard deviations.  The second parameter is the period used for the smoothing Exponential Moving Averages.

Calculation of Relative Volatility Index

Application of Relative Volatility Index

The Relative Volatility Index is usually combined with MACD to produce entry and exit signals. An entry (or buy) signal is indicated when the MACD rises above its signal line and the RVI is greater than 50%.  An exit (or sell) signal is indicated when the MACD is falls below its signal line and the RVI is less than 50%. 

Relative Volatility Index combined with MACD

Related Terms

Inertia Indicator
CBOE Volatility Index
Chaikin Volatility Indicator
The Inertia Indicator is used to determine the prevailing price trend, calculated using the Relative Volatility Index and then smoothed by the Linear Regression Indicator. 

The CBOE Volatility Index (VIX) is the index for the implied volatility of S&P 500 index options listed on the Chicago Board Options Exchange.
The Chaikin Volatility Indicator represents the difference between daily high and low stock prices.
Keltner Channel
Risk Measures
Sortino Ratio
Keltner Channel is a volatility based 'envelope' indicator that measures the movement of stocks in relation to an upper and lower moving-average band.
Risk Measures are statistical measures that are historical predictors of investment risk, volatility and major components in modern portfolio theory (MPT).
The Sortino Ratio measures the risk-adjusted return of an investment asset, portfolio or strategy.