Understanding the RAVI Indicator for MetaTrader 5: A Trader's Guide

Hey fellow traders! Today, I want to dive into a handy tool for your trading arsenal—the RAVI (Range Action Verification Index) indicator, developed by T. Chande. This indicator offers a unique perspective compared to traditional indicators like the ADX.

At its core, RAVI uses a 13-week Simple Moving Average (SMA) to gauge the mood of market participants over a quarter (that's about three months or 65 trading days). To keep things simple, the short average is roughly 10% of the long one, which averages out to about 7 days.

The RAVI formula looks like this:

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

Here, SMA(period) refers to the simple moving average calculated over the specified period.

Chande recommends using reference lines at plus-minus 0.3% or plus-minus 0.1%, depending on the market conditions. When the RAVI line crosses the reference line upwards, it signals the start of a new uptrend. Conversely, a downward crossover indicates a potential downtrend. If the RAVI line is on the rise, expect the trend to keep pushing up. If it’s falling, brace yourself for a possible downturn.

A reversal of the RAVI indicator back to the zero line suggests that the current trend is over and we might be entering a channel. However, if the indicator flips back without breaching the reference lines, it usually means the trend is resuming.

The RAVI indicator is straightforward and bears resemblance to other indicators like the MACD and Price Oscillator. What's unique about RAVI is its focus on movement convergence-divergence, making it an effective trend indicator that considers divergence rather than just crossing averages.

Unlike the ADX, which utilizes two smoothings, RAVI only has one. This means it's more sensitive and can provide earlier signals regarding the start or end of a trend compared to an 18-day ADX.

This indicator lets you pick from ten different smoothing types:

SMA - simple moving average;
EMA - exponential moving average;
SMMA - smoothed moving average;
LWMA - linear weighted moving average;
JJMA - JMA adaptive average;
JurX - ultralinear smoothing;
ParMA - parabolic smoothing;
T3 - Tillson's multiple exponential smoothing;
VIDYA - smoothing using Tushar Chande's algorithm;
AMA - smoothing based on Perry Kaufman's algorithm.

Keep in mind that the phase type parameters vary significantly between different smoothing algorithms. For instance, in JMA, the phase variable ranges from -100 to +100, while for T3, it's a smoothing ratio multiplied by 100 for better visibility. For VIDYA, it's related to the CMO oscillator period, and for AMA, it’s the slow EMA period. Other algorithms might not have any effect on smoothing from these parameters. Importantly, the fast EMA period for AMA is fixed at 2 by default.

To use this indicator, make sure to include the SmoothAlgorithms.mqh library classes in your terminal_data_folder\MQL5\Include. You can find a detailed explanation of these classes in the article "Averaging Price Series for Intermediate Calculations Without Using Additional Buffers".

Originally, this indicator was implemented in MQL4 and published in CodeBase on February 15, 2008.

RAVI (Range Action Verification Index) indicator

Understanding the RAVI Indicator for MetaTrader 5: A Trader's Guide

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