Both VEL and RSX measure market
VEL measures momentum direction and speed
accurately to scale. If bar-to-bar price changes double in size, VEL's chart
will double in size. In other words, VEL provides true momentum.
This makes VEL not useful for thresholding,
such as when you want to trigger a BUY/SELL when VEL crosses over/under a
(non-zero) threshold value. The reason is because the threshold will require
almost continuous readjustment as the magniture of price changes grows/shrinks
over time. However, this property is very useful in divergence analysis, where
you want to accurately compare price turning point values to momentum turning
point values. CLICK HERE for a graphic
example of this use in divergence analysis.
RSX, in contrast, measures momentum direction
and **quality**, not speed. If trend quality is pure (i.e. having tiny
reversals) then RSX signal is strong. If quality is weak, such as when a trend
is congesting into a trading range, then RSX signal becomes weak. This makes
RSX ideal for showing market reversals and the demise of trends weakened by
RSX is also bounded between the range of 0 to
100. In contrast, VEL is unbounded and can have any value. This scale-invariant
nature of RSX makes it suitable for thresholding, as the threshold level does
not need to change over time, as it would for VEL. Consequently, you can define
BUY and SELL zones with RSX, whereby a SELL order is never executed when RSX is
above the BUY ZONE threshold level, and a BUY order is never executed when RSX
is below the SELL ZONE threshold level.