Stocks & Commodities V. 23:8 (48-51): Turbocharge It! by Marge Sherald
Tired of spending too much time in front of your computer? Here’s how you can cut that time and fine-tune your indicators and trading rules.
As a trader, you know the process of developing and
testing trading systems never ends if you want to keep up with changing markets. You spend countless hours in front of your computer fine-tuning indicators and trading rules to fit your trading style and increase your profits. In this article, you’ll learn how to let a genetic algorithm do a lot of your work, save time, and turbocharge your returns.
THE RELATIVE VIGOR INDEX
Recently, I read Cybernetic Analysis For Stocks And Futures by John Ehlers. Ehlers has built a reputation as the foremost expert in the industry at applying signal processing techniques to trading. One of the indicators in his book, the relative vigor index, caught my attention, and I decided to use that as a starting point for my trading strategy.
The relative vigor index (RVI) is an oscillator that measures the strength of up or down markets by computing the difference between the close and opening prices relative to the total movement for the day. To normalize the index to the daily trading range, the change in price is divided by the maximum range of prices for the day. The basic formula for the RVI is as follows:
RVI = (Close – Open) / (High – Low).