There are a number of useful technical indicators which traders can use to determine the correct binary options trade to execute. These technical indicators are extremely important in the placing of successful trades, and one of them is the Relative Vigor Index. This is a popular indicator which is regularly used by experienced traders to inform their trades and achieve greater profits.
The RVI or Relative Vigor Index is one of the most popular technical indicators which is chosen by many traders. Very similar to the stochastic indicator, the difference between that and the RVI is that the closing price is not compared to the low price for a given period, but instead is compared with the opening price.
Like most other indicators, the RVI can easily be found on the majority of charting platforms, and many traders consider it to be the sort of indicator where they are able to leave it alone to see what happens before they place their call or put options.
When the RVI is used correctly, it is an indicator that can help a trader to achieve excellent profits.
How Does the Relative Vigor Index Work?
The RVI is a technical indicator which is frequently used to measure what traders refer to as “conviction”. This is basically the chance that the current price action will continue. The Relative Vigor Index is used to compare the price range of an asset with the closing prices that are relevant to it. This is achieved by finding a calculated and smoothed out moving average of both price values that it contains.
Usually, the Relative Vigor Index will go higher in the case where a bullish trend is gaining momentum. The indicator’s height will determine how strong the existing price drop or current price increase is. To interpret it, a trader must use crossovers between the Relative Vigor Index signal line and the Relative Vigor Index itself.
How to Use the Relative Vigor Index When Trading
One of the advantages of the RVI indicator is that it has a signal line which helps traders to guide their striking prices. Like other oscillators, the RVI indicator comes with oversold and overbought areas, so if the Relative Vigor Index shows that it crosses above the Relative Vigor Index signal line, a trader should take this as a sign that they ought to execute a call option. On the other hand, if the Relative Vigor Index crosses below the Relative Vigor Index’s signal line, this is an indication that the trader should execute a put option instead.
However, usually this is primarily valid in a ranging environment where the market gives conflicting signals, and it can be difficult to make a distinction between a ranging market and a market which is making an impulsive move. One way to do this is to check the signal line. If the market reaches the overbought area with the signal line moving below the average, this indicates a turn in the market so put options should be executed. But if the oscillator does not reach the oversold area with the signal line crossing once more on the bullish side, a trader should place call options.
A trader can also look for divergences in the price when compared to the oscillator. Bullish divergences are said to be taking place if the price makes two consecutive and separate lows and the oscillator does not confirm them. In this situation, a trader should place call options with an expiry date that is adjusted to the oscillator’s time frame. In the case of a bearish divergence when a price makes two higher highs with the oscillator failing to make the 2nd one, a trader should place put options with a matching expiry date.
The perfect striking price can be found by looking at the signal line. When it crosses below the moving average, bearish conditions are indicated and therefore put options are favoured. If it crosses above the moving average, bullish conditions are indicated, and call options are suggested.
Just like any other oscillator, the RVI is dependent on the time period in question. A time period with a lot of candlesticks to take into account will result in a flat oscillator, with the crossings above or below the moving average and any apparent spikes not being visible enough, or being too tricky to interpret.
Traders generally view the Relative Vigor Index as one of their primary indicators. It has one great advantage as it helps the investor to predict a trend change when specific signals are given i.e. when an asset’s price moves across into the extreme areas. When a trader uses the Relative Vigor Index, they will sometimes receive confusing signals, however most frequently, the investor will make a profit by using the RVI as it is believed widely to be a low risk indicator.
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