Trading cryptocurrency market using relative volatility index

Trading cryptocurrency market using relative volatility index

By quintomudigo | Teacher forex school | 12 Dec 2019


Relative volatility index is an oscillator indicator.

As an oscillator indicator, Relative volatility index was developed by Donald Dorsey in order to help traders know the direction of the market as well as know whether the market has experienced an oversold or an overbought condition . As an oscillator indicator, Relative volatility index is considered to be similar to RSI except that it measures the standard deviation of price changes over a given period rather than the absolute price change. Just like in other oscillator indicators, Relative volatility index also oscillates from 0 all the way to 100.

 

Relative volatility index is calculated the same way as Relative strength index except that instead of using price change,standard deviation of price change will be used in calculation

 

Relative volatility index can therefore be explained using oversold and overbought conditions as follows;

 

1. Relative volatility index cryptocurrency oversold

Since relative volatility index is an oscillator,it therefore follows that when RVI falls below 50 that will tell the cryptocurrency trader to remain in the downward market direction. Furthermore, if the Relative volatility index falls below 30, that will be an indication of an oversold market condition thus signalling the cryptocurrency trader to purchase a given amount of  cryptocurrency with their USDT balance. The trader can either use the market buy order or the limit buy order. The market buy order will be processed immediately while the limit buy order will be processed when the price in the market reaches their buy limit order. This is indicated as from the candle sticks chart below;

 

351665157-db28b4bcfc92f4afa5f94abb8028b0a25f249170b008742b84ac3087b3f46349.png

 

 

The above chart represents the TRX/USDT market. Two points are being indicated. There is point A and point B. Point A represents the relative volatility index while point B is the oversold point. At point B, the relative volatility index has fallen below 30 thus an indication of an oversold market over there. This signals the cryptocurrency trader to purchase a given amount of TRX with their USDT balance. The trader can either place a market buy order or a limit buy order. The market buy order will instantly be executed while the limit buy order will be executed when the price reaches their limit buy order. When the order is being processed completely, the account of the cryptocurrency trader will start increasing in value if the market is moving upwards.

 

 

2. Relative volatility index cryptocurrency overbought

Since relative volatility index is an oscillator,it therefore follows that when RVI rises above 50 that will tell the cryptocurrency trader to remain in the upward market direction. Furthermore, if the Relative volatility index rises above 70, that will be an indication of an overbought market condition thus signalling the cryptocurrency trader to sell the cryptocurrency which he had previously purchased and is currently holding in order to prevent their account from declining in value. The trader can place a market buy order or a limit buy order. The market buy order will instantly be processed while the limit buy order will be processed when the market reaches their limit buy order price.Here is a view of the how the chart looks like;

 

351665157-38a19f8b19d830eaf9f83147b06868ff98a5db8e0b3313e36e35e1e12b17c039.png

 

The above chart represents the TRX/USDT market. Two points are being indicated. There is point A and point B. Point A represents the relative volatility index while point B is the overbought point. At point B, the relative volatility index has risen above 70 thus an indication of an overbought market over there. This signals the cryptocurrency trader to sell a given amount of TRX which he had previously purchased and is currently holding to prevent the lose of value of their account. The cryptocurrency trader can either place a market sell order or a limit sell order. The market sell order will immediately be processed while the limit sell order will be processed when the market reaches their limit sell order price. When the order is being processed, their account will increase in value in terms of USDT .

Cryptocurrency market is a highly volatile market. As a cryptocurrency trader,whenever you place a buy order,always make sure to apply risk management so that whenever your buy order goes against you, your account do not depreciate so much in value.

 

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quintomudigo
quintomudigo

Trader, Blockchain Technologist and Contentpreneur. Also founder and CEO @ Teacher Forex School.


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