RAVI Indicator

What

Tushar Chande published the RAVI indicator (Rapid Adaptive Variance Indicator) in his book "Beyond Technical Analysis" in 1997. Like the ADX, the RAVI indicator differentiates between a trending market and a trading market. Although the RAVI measures the trend intensity, it does not distinguish which way the trend is going. As a result: a rising RAVI shows the beginning of a trend or an increase in trend intensity, but not the trend direction. Similarly, a falling RAVI shows the end of a trend or a decrease in trend intensity, but not the trend direction itself. A distinction between these two indicators that is worth mentioning is that the RAVI indicator often reacts more quickly and exhibits a more pronounced curve than the ADX.

How

Two moving averages calculated in percents are used for the indicator.

RAVI = 100*(SMA(7) - SMA(65)) / SMA(65)

When

The Ravi indicator does not grade the trend as bullish or bearish, but merely assesses the strength of the current trend. A reading above 3% can indicate a strong downtrend as well as a strong uptrend.

The RAVI indicator can also be used to identify potential changes in a market from trending to non-trending. When RAVI begins to strengthen from below 2% and moves above 3%, it is a sign that the trading range is ending and a trend is developing.

When the RAVI indicator begins to weaken, it is a sign that the current trend is losing strength and a trading range could develop. Generally the shorter period should be 10% of the longer period.

As long as the RAVI is rising, oscillators should not be used. The RAVI can be used as a filter between oscillators and trend-following indicators.