Relative Vigor Index - RVI

When the economy is doing well, companies make more profits, and stock prices tend to rise. And when the economy’s not doing so hot, stock prices tend to fall. We know this. But how can we tell whether the rising or falling prices we’re seeing are part of a larger trend? And if they are, how can we tell how strong that trend is?

Enter the RVI, which is designed to help us answer those very questions.

The RVI, or “Relative Vigor Index,” is an indicator that tells us how strong a price trend is. The more the index rises, the more optimistic or bullish the market is. The more it falls, the more bearish the market is. In simple terms, we look at a stock’s closing price and its trading range, we smooth it all out, and we plot it on a graph. The next day, we do the same thing. The day after that, we do the same thing. After a while, we have ourselves a nice little graph that gives us an easy-to-understand view of how a stock is trending over a period of time. It’s like a series of progress photos, but of stock performance...instead of a bathroom remodel or weight loss journey.

If we’re looking at our progress photos—er, RVI—and see that the index is starting to diverge a little bit from the actual stock price, it might mean there’s a trend change a-comin’. So should we take what the RVI says as gospel? Just as with any other singular index or indicator, the answer to that question is "no." But if we use it together with other financial analysis tools, it just might help us make some very wise investment decisions.