The indicator represents the relative convergence/divergence of the moving averages of the financial asset, increased a hundred times. It is based on a different principle than the ADX. Chande suggests a 13-week SMA as the basis for the indicator. It represents the quarterly (3 months = 65 working days) sentiments of the market participants concerning prices. The short moving average comprises 10% of the one and is rounded to seven.
Tushar Chande suggests the following reference lines for the RAVI indicator: plus-minus 0.3% or plus-minus 0.1% (depending on the market). When the indicator crosses the upper reference line upward, an uptrend is considered to have started. When the indicator crosses the lower reference line downward, a downtrend is considered to have started. The uptrend is considered to be continuing while the RAVI line grows. The downtrend, respectively, while the RAVI falls. As soon as the indicator reverts to the zero line, the trend is considered to have ended, and a channel is considered to have started. But if the indicator reverses again, without entering the gap between the reference lines, the trend is considered to have resumed.
Essentially, the proposed indicator is quite simple and almost identical to the Price Oscillator and MACD. The uniqueness is in the use of the price convergence-divergence value as the trend indication, paying attention to the divergence and not the crossing of the averages.
After examining the plotting method of the АDХ, it can be said that the indicator has two smoothings. RAVI has one smoothing. This makes the indicator more sensitive. With the specified values, it warns about the beginning and end of a trend earlier than an 18-day ADX.
The indicator uses SmoothAlgorithms.mqh library classes (copy it to <terminal_data_folder>\MQL5\Include). The use of the classes was thoroughly described in the article "Averaging Price Series for Intermediate Calculations Without Using Additional Buffers".
Originally this indicator has been written in MQL4 and was first published in the Code Base on 15.02.2008.
Fig.1. The RAVI indicator
Translated from Russian by MetaQuotes Software Corp.
Original code: https://www.mql5.com/ru/code/16067
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