Variously described as an inventor, a scientist, and a respected trading systems developer Tushar Chande decided to take the potential of the price oscillator, and develop into a much more reliable trend indicator. He came up with Ravi. This stands for Range Action Verification Indicator. It looks very similar to price oscillator, but it is not. For daily charts, this indicator looks like this. The difference between the 7-day Moving Average and the 65-day Moving Average over the 65-day Moving Average, then multplying the whole thinig by 100.
Unlike the price oscillator, it is calculated as a percentage and not in points. Another difference is that Chand suggested using signal lines for his indicator. They are drawn at a level of +0.1% or -0.1% for the forex markets We have an uptrend situation, when Ravi is above the upper signal line and rising.. Conversely, it is a bear market if Ravi is below the lower signal line and falling. With Ravi, there is a zone between the two signal lines. It is a trading range zone. We view the market as trendless.
Looking at the daily chart, we decide to set our signal lines at levels of +0.1% and -0.1%. If we design our trading system based only on the Ravi indicator, we would get buy signals and exit signals within the green zone. In the red and white areas, Ravi provides information on reversal, trend slowdown or a sideways market. Ravi does not generate trading signals by itself for these intervals.
Let’s look at an example of Ravi at work on an hourly chart.. We have selected the parameters of 12 and 72. Signal lines are drawn at +0.3% and -0.3%. Now, Zone A is an easily recognizable trading range. The indicator leaves the sideways market and gives the signal to sell at point 1. We get the signal to get out of the market and close our position at point 2. That would have earned us 90 points. Zone B is downtrend. One advantage of Ravi is its ability to identify trading ranges, which we have marked in red.
© Prabhu for Forex Videos, 2017. |
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