Direct Answer
Relative Volatility Index is a volatility measure used to measure dispersion, range, implied uncertainty, or expansion/contraction in price movement. The production page must define the exact calculation convention before interpreting higher or lower readings, because platform and provider implementations can differ.
Relative Volatility Index: Formula, Meaning, Signals, Examples and How to Use It
How Is Relative Volatility Index Calculated?
The Relative Volatility Index (RVI), introduced by Donald Dorsey, applies an RSI-style calculation to the standard deviation of price instead of price changes. It indicates whether recent volatility is occurring mostly on up days or down days.
Formula: RVI = 100 x U / (U + D), where U and D are smoothed averages (period 14) of the 10-day standard deviation of closes on up closes and down closes respectively
Inputs:
- Closing prices
- Standard deviation period (commonly 10)
- Smoothing period (commonly 14)
Worked example. A smoothed up-day standard deviation of 1.8 and down-day value of 1.2 give an RVI of 60.0. The inputs are illustrative numbers, not market data.
Reading it. Values above 50 mean volatility has been higher on up closes, below 50 that it has been higher on down closes. Dorsey intended it as confirmation for a trend signal rather than a standalone tool, with levels like 50 as the midpoint.
Limits. It reflects the direction in which volatility occurs, not the amount, so a quiet market can read the same as a turbulent one. Its thresholds are conventions, and the smoothing introduces lag.
Indicator overview
| Attribute | Value |
|---|---|
| Category | Volatility |
| Asset classes | Stocks, ETFs, Indexes, Options, Futures, Forex, Crypto, Commodities |
| Output type | Ratio/index/scalar |
| Parameters | Varies by implementation; document exact settings on use |
What is Relative Volatility Index?
Relative Volatility Index is a volatility measure used to measure dispersion, range, implied uncertainty, or expansion/contraction in price movement. The production page must define the exact calculation convention before interpreting higher or lower readings, because platform and provider implementations can differ.
For Swoopr, the canonical profile separates definition, calculation, interpretation and decision use. That keeps readers from collapsing a descriptive metric into a trading strategy. An indicator can describe trend, momentum, volatility, participation, positioning or risk without providing a complete entry, exit, sizing or portfolio decision.
What does it measure?
Relative Volatility Index measures specific market properties in the Volatility domain. The practical value is repeatability: the same inputs and formula can be applied across a defined dataset, allowing users to compare readings through time or across instruments when the calculation convention is held constant.
How to read Relative Volatility Index
Interpretation depends on the market property being measured. A descriptive reading is not automatically predictive. The same numerical state can lead to different outcomes in a strong trend, quiet range, event-driven gap or illiquid market. Always combine with context from price structure, volume, and broader market regime before drawing conclusions.
Strengths
- Applying the RSI structure to standard deviation separates volatility on up closes from volatility on down closes, which plain RSI does not.
- Output is bounded between 0 and 100, so a fixed scale and the familiar 50 midpoint apply.
- Reproducible when the formula and data convention are fixed.
Weaknesses and limitations
- Direction is taken from the close-to-close change, so a bar's whole standard deviation is assigned to up or down by a single comparison.
- The 10-day standard deviation and the 14-period smoothing are two separate lengths that interact, so settings are hard to compare with RSI's single length.
- Correlated indicators can create false confidence by repeating the same underlying information.
Editorial and risk note
This page is educational content, not individualized investment advice. It should not imply guaranteed prediction, accuracy or outperformance. Where multiple valid definitions exist, Swoopr states the alternatives and the reason for selecting its primary convention.
Frequently Asked Questions
Is Relative Volatility Index a buy or sell signal?
No. Values above 50 mean volatility has been higher on up closes, below 50 that it has been higher on down closes. It reflects the direction in which volatility occurs, not the amount, so a quiet market can read the same as a turbulent one. A trade built on it still needs a trigger, an invalidation rule, a position size and realistic execution assumptions.
What is the best setting for Relative Volatility Index?
Relative Volatility Index takes these inputs: closing prices; standard deviation period (commonly 10); smoothing period (commonly 14). There is no universal best setting for the tunable ones, so test them across instruments, regimes and out-of-sample periods and favor stable parameter regions over one historical winner.
Can Relative Volatility Index be used by itself?
It reflects the direction in which volatility occurs, not the amount, so a quiet market can read the same as a turbulent one. Its thresholds are conventions, and the smoothing introduces lag. For that reason it is read next to measures of direction, participation, valuation, liquidity and risk, not alone.
Does Relative Volatility Index work on every timeframe?
The calculation (RVI = 100 x U / (U + D), where U and D are smoothed averages (period 14) of the 10-day standard deviation of closes on up closes and down closes respectively) can be run on any bar size, but behavior is not portable: a reading on a five-minute chart describes a very different market window from the same reading on a daily chart. Validate the exact timeframe before relying on it.
Why does Relative Volatility Index give false signals?
Direction is taken from the close-to-close change, so a bar's whole standard deviation is assigned to up or down by a single comparison. The 10-day standard deviation and the 14-period smoothing are two separate lengths that interact, so settings are hard to compare with RSI's single length. Lag, noise and regime changes add to this, because market participants react to new information after the reading is calculated.
How should Relative Volatility Index be backtested?
Rebuild Relative Volatility Index from closing prices using point-in-time data, write the rules before testing, include delisted securities where relevant, model realistic fills and costs, reserve a validation sample and compare with a simpler baseline.