[blackcat] L2 Range Action Verification Index (RAVI) with 3 SMA

28 Sep 2023

The Range Action Verification Index (RAVI) is a technical indicator used in trading to measure the strength of a trend. It compares two simple moving averages (SMAs) to determine the market's momentum.

To calculate RAVI, we subtract the shorter SMA from the longer SMA, and then divide the result by the longer SMA. This value is then multiplied by 100 to express it as a percentage.

The RAVI indicator helps traders identify whether the market is in a trending or range-bound phase. When the RAVI value is positive, it indicates a bullish trend, suggesting that the market is in an uptrend. Conversely, a negative RAVI value indicates a bearish trend or a downtrend.

Traders can use the RAVI indicator in several ways. Here are a few common strategies:

1. **Trend confirmation**: Traders can use RAVI to confirm the strength of a trend identified by other indicators or price patterns. If the RAVI value aligns with the direction of the trend, it provides additional confirmation.
2. **Overbought and oversold conditions**: Traders can use extreme RAVI values to identify overbought or oversold conditions in the market. When the RAVI value reaches high positive or negative levels, it suggests that the market may be due for a reversal or a retracement.
3. **Divergence**: Traders can look for divergences between the RAVI indicator and the price action. For example, if the price makes a higher high, but the RAVI value makes a lower high, it could indicate a weakening trend and a potential reversal.

As with any technical indicator, it is essential to use RAVI in conjunction with other tools and analysis techniques to make informed trading decisions. Traders should also consider factors such as market conditions, risk management, and other supporting indicators to validate their trading strategies.

In this indicator, an additional simple moving average (SMA) is introduced to consider long-term bias. This modification allows the Range Action Verification Index (RAVI) to be used as a volatility filter. By comparing the shorter SMA with this longer SMA, traders can gain insights into the market's volatility and adjust their trading strategies accordingly. This longer SMA helps provide a broader perspective on the market's trend and can be particularly useful for identifying and filtering out periods of high volatility. It is called "L2 Range Action Verification Index (RAVI) with 3 SMA". It calculates the RAVI value based on three simple moving averages (SMA). The code also includes calculations for the upper and lower bands, as well as color gradient settings. Finally, it plots the RAVI values and a midline.

It calculates the Range Action Verification Index (RAVI) using three Simple Moving Averages (SMA). The RAVI measures the difference between two SMAs divided by a third SMA, and then multiplied by 100.

The code starts with defining input parameters such as length, multiplier, and lengths for the three SMAs. Then it assigns the closing price to a variable called "price".

Next, it calculates the three SMAs using the "ta.sma" function from TradingView's built-in technical analysis library. The first SMA uses "sma1Length", the second SMA uses "sma2Length", and the third SMA uses "sma3Length".

After that, it calculates the RAVI by subtracting sma2 from sma1, dividing it by sma3, and multiplying it by 100.

Then it calculates additional values like basis (using another SMA), deviation (using standard deviation), upper band (basis + dev), and lower band (basis - dev).

Finally, it plots these values on a chart using different colors for each line. It also creates an array of gradient colors based on RSI values calculated from another indicator called ALMA. This gradient color is used to colorize the RAVI line.

Overall, this script helps visualize and analyze market trends based on moving averages and their relationship with price movements.