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.

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.

Relative Volatility Index = EMA(Stddev(High,n)) / (EMA(Stddev(High)) + EMA(Stddev(Low)))

where:

  • EMA is the Exponential Moving Average
  • Stddev is the Standard Deviation over n periods

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%. 

The Relative Volatiltiy Index is is usually combined with MACD to yield buy and sell signals.

The Relative Volatiltiy Index is is usually combined with MACD to yield buy and sell signals.