Vortex Indicator (VI)

What is the Vortex Indicator (VI)?

A vortex indicator (VI) is an indicator made out of two lines - an uptrend line (VI+) and a downtrend line (VI-). These lines are normally colored green and red separately. A vortex indicator is utilized to spot trend reversals and affirm current trends.

Figuring out Vortex Indicator (VI)

The vortex indicator was first developed by Etienne Botes and Douglas Siepman who presented the concept in a 2009 release of "Technical Analysis of Stocks and Commodities." The vortex indicator depends on two trendlines: VI+ and VI-.

Vortex Indicator Calculations

The calculation for the indicator is divided into four parts.

1. True reach (TR) is the best of:

• Current high minus current low
• Current high minus previous close
• Current low minus previous close

2. Uptrend and downtrend movement:

• VM+ = Absolute value of current high minus prior low
• VM-= Absolute value of current low minus prior high

3. Boundary length (n)

• Settle on a boundary length (somewhere in the range of 14 and 30 days is common)
• Sum the last n time frame's true reach, VM+ and VM-:
• Sum of the last n periods' true reach = SUM TRn
• Sum of the last n periods' VM+ = SUM VMn+
• Sum of the last n periods' VM-= SUM VMn−

4. Make the trendlines VI+ and VI-

• SUM VMn+/SUM TRn = VIn+
• SUM VMn-/SUM TRn = VIn−
• Rehashing this cycle daily forms the VI+ and VI-trendlines.

The traditional application of utilizing VI-and VI+ hybrids can bring about a number of false trade signals when price action is choppy. Increase the number of periods utilized in the indicator to reduce this, for instance, utilizing 25 periods rather than 14.

Deductions

The vortex indicator is commonly utilized related to other reversal trend examples to assist with supporting a reversal signal. It is integrated into most technical analysis software programs. VI+ and VI-are ordinarily diagramed freely below a candlestick chart. The chart below provides a model with lines that show changing trend signals on a candlestick chart.

An uptrend or buy signal happens when VI+ is below VI-and afterward crosses above VI-to take the top position among the trendlines. A downtrend or sell signal happens when VI-is below VI+ and crosses above VI+ to take the top position among the trendlines. Overall, the trendline in the top position generally directs whether the security is in an uptrend or downtrend.