Relative Volatility Index: A Full Guide to RVI vs. RSI

Many traders know the RSI for measuring price momentum. The Relative Volatility Index (RVI) takes a different approach. Developed by Donald Dorsey, this technical indicator doesn’t just measure the speed of price changes; it measures the strength and direction of the market’s volatility.

It helps investors confirm if a trend is stable or if it is losing steam and ready to reverse. This guide explains how the RVI indicator works and how traders use it to find signals.

1. What Is the Relative Volatility Index (RVI)?

The Relative Volatility Index (RVI) is a technical analysis indicator developed by Donald Dorsey in 1993, designed to measure the direction of relative price volatility, not just price momentum.

This is the key difference in the RVI vs. RSI debate. The popular RSI (Relative Strength Index) measures the speed of price changes. The RVI, however, calculates the standard deviation (or consistency) of price changes to determine a trend’s stability (TradingView, n.d.).

The RVI indicator value oscillates between 0 and 100. It helps show the direction and strength of volatility:

• RVI above 50 (especially > 60): This suggests that volatility is strong and biased to the upside (a bullish confirmation).
• RVI below 50 (especially < 40): This suggests that volatility is weak or biased to the downside (a bearish confirmation).
• RVI near 50: This suggests a neutral, sideways market with no clear momentum.

2. How the Relative Volatility Index Works

The Relative Volatility Index (RVI) works by measuring the strength of volatility, not just the speed of price. It operates on the idea that a strong trend should have consistent volatility in its primary direction.

2.1. The Concept Behind the RVI

This is the most important part of the relative volatility index vs rsi debate:

• The RSI (Relative Strength Index) measures price momentum. It answers, “How fast and how much has the price changed?”
• The RVI (Relative Volatility Index) measures volatility strength. It answers, “How consistent was the volatility during those market movements?”

When price volatility increases in the same direction as the trend (e.g., strong upward volatility in an uptrend), the RVI rises. This provides a confirmation for trend-following traders.

2.2. The Calculation Components

The relative volatility index formula looks complicated, but its components are simple to understand.

• It uses the Standard Deviation (SD) of price changes over a set period (usually 10 or 14 days), not just the closing prices.
• The formula is built with the same structure as the RSI. However, instead of comparing “Average Gains” vs. “Average Losses,” the RVI compares the “Average Standard Deviation of Up-Periods” vs. the “Average Standard Deviation of Down-Periods.”

This focus on standard deviation is what makes it a true volatility indicator.

3. The Relative Volatility Index Formula

The formula for the RVI is:

Let’s break down these components:

• SD_up: The Standard Deviation of price changes on days (or periods) when the price closed higher than it opened.
• SD_down: The Standard Deviation of price changes on days (or periods) when the price closed lower than it opened.
• Period (Settings): Typically run over 10 or 14 periods (trading days).

Example:

Let’s use the simple example from your outline:

• Assume the SD_up for the past 10 days is 0.8.
• Assume the SD_down for the past 10 days is 0.4.

This RVI value of 66.7 is well above the 50 centerline, confirming a strong bullish (upward) volatility bias.

4. How to Interpret the Relative Volatility Index

The RVI indicator provides traders with three primary types of trading signals: overbought/oversold levels, trend confirmation, and divergences.

4.1. Overbought and Oversold Levels

Like the RSI, the RVI oscillates between 0 and 100. However, the RVI uses different levels because it measures volatility, not momentum.

• Overbought: A reading above 80 suggests that upward volatility is at an extreme, and the market may be overbought.
• Oversold: A reading below 20 suggests that downward volatility is at an extreme, and the market may be oversold.

These signals are generally less sensitive (and show up less often) than the RSI’s 70/30 signals. This is because the RVI is reacting to the consistency of volatility, not just the speed of the price change.

4.2. Crossovers and Trend Confirmation

The 50-line is the RVI’s most important level for identifying the trend’s bias.

• Bullish Bias: When the RVI is above 50, it confirms that the market’s volatility is biased to the upside.
• Bearish Bias: When the RVI is below 40-50, it confirms that the volatility is biased to the downside.

Many traders also add a Signal Line (typically a 10-period EMA of the RVI) to generate short-term trading signals.

• A bullish signal occurs when the RVI line crosses above its signal line.
• A bearish signal occurs when the RVI line crosses below its signal line.

4.3. Divergences

This is the most powerful signal from the RVI. Divergence occurs when the price is telling one story, but the RVI is telling a different one.

• Bullish Divergence: The price makes a new low, but the RVI indicator makes a higher low. This signals that the downward volatility is weakening, and a bullish reversal (price moving up) may be near.
• Bearish Divergence: The price makes a new high, but the RVI indicator makes a lower high. This signals that the upward volatility is weakening, and a bearish reversal (price moving down) may be near.

5. RVI vs. RSI – What’s the Difference?

The RVI indicator and the RSI (Relative Strength Index) look similar on a chart, but they measure two completely different things. This is the most important concept to understand.

Feature	Relative Strength Index (RSI)	Relative Volatility Index (RVI)
Measures	Price Momentum (How fast and how much price has changed).	Volatility Strength (How consistent and stable is volatility in the trend’s direction).
Calculation Basis	Uses average price change (Average Gains vs. Average Losses).	Uses Standard Deviation of price changes (Upward Volatility vs. Downward Volatility).
Sensitivity	Generally High (Reacts quickly to the speed of price movements).	Generally Lower (Smoother) (Filters noise, focusing on the trend’s stability).
Use Case	To identify short-term momentum and overbought/oversold conditions.	To confirm the volatility behind a trend; functions as an excellent confirming indicator.

6. Combining the RVI With Other Indicators

The Relative Volatility Index (RVI) is a confirmation tool. It works best when you combine it with another technical indicator that measures price trend or momentum. This forms the basis of many effective forex trading strategies.

6.1. RVI + Moving Averages (MAs)

Combining the RVI with moving averages helps you confirm a trend. A simple rule for this relative volatility index trading strategy is:

• Bullish Confirmation: The price is above its 50-period MA (signaling an uptrend), AND the RVI is above 50 (confirming upward volatility).
• Bearish Confirmation: The price is below its 50-period MA (signaling a downtrend), AND the RVI is below 50 (confirming downward volatility).

6.2. RVI + Bollinger Bands

Using the RVI and Bollinger Bands together is excellent for analyzing volatility.

• Breakout Confirmation: When the price breaks out and “walks the band” (touches the outer Bollinger Band), traders look at the RVI. If the RVI is also high (e.g., > 70), it confirms that volatility is strong and supports the breakout.
• Reversal Signal (Divergence): If the price touches the upper band, but the RVI is falling, it signals a bearish divergence. This shows that volatility is weakening, and the price may be ready to reverse.

6.3. RVI + MACD or RSI

The most common combination is using the RVI to confirm momentum signals from the MACD or RSI.

• Example: A trader sees a bullish MACD crossover (a momentum buy signal). They then check the RVI. If the RVI is also above 50, it confirms that the market’s volatility agrees with the momentum, making it a stronger, more reliable signal.

7. Limitations of the RVI indicator

No indicator is perfect, and the Relative Volatility Index (RVI) has clear weaknesses that investors must understand.

• Lagging nature: The RVI is a lagging indicator. Because its formula relies on Standard Deviation (SD) and moving averages of past data, its signals will always come after the price has already started to move.
• Poor in sideways markets: Like most trend-following indicators, the RVI is not effective in a sideways (choppy) market. In these conditions, it will produce many false and confusing signals (“noise”) as it oscillates around the 50-line.
• Requires confirmation: The RVI should not be used as a standalone tool. As a confirming indicator, its signals are much more reliable when used for confirmation. A trader should always combine RVI signals with price action (like a break of trendlines) or other trend filters to avoid acting on false signals.

8. Frequently asked questions about Relative Volatility Index

9. The Bottom Line

The Relative Volatility Index (RVI) is a valuable tool that helps traders measure the strength of market volatility, rather than just price momentum. When combined with other indicators like the RSI, MACD, or Bollinger Bands, the rvi indicator becomes a powerful confirming indicator for validating trends or spotting potential reversals.

However, traders must remember that the RVI is a supplementary tool. It should always be used in combination with primary price trend analysis and should not be relied upon by itself for signals. To learn more about more strategies and discover the powerful technical indicators list, explore the in-depth guides at PipRider.