The Vortex Indicator is a highly valuable technical indicator that helps predict the start of a new trend.
Etienne Botes and Douglas Siepman published this indicator in the Technical Analysis of Stocks & Commodities Magazine.
We generally use 14 periods for the Vortex Indicator. We may utilize it on a daily basis as well as intraday time frames (15-30-60 minutes).
The indicator comprises two lines, one rising and the other falling. These lines may be used to determine what is currently happening on the market.
- If the +VI is above the -VI, the trend is bullish.
- If the -VI is above the +VI, the trend is bearish.
Vortex Indicator Trading Signals
A bullish signal occurs when the +VI crosses the -VI from bottom to top.
A bearish signal occurs when the -VI crosses the +VI from bottom to top.
We can use the Vortex indicator to identify typical positive/negative divergences in price trends.
A bullish divergence occurs when prices draw decreasing highs. The +VI draws increasing highs, and -VI draws decreasing lows.
There is a bearish divergence when prices draw rising highs. The +VI draws decreasing highs, and -VI draws rising lows. If the VI crosses the VI from bottom to top, thus provides a bullish signal.
Market entry occurs when prices exceed the maximum of the bar where the cross happened.
Similarly, if the VI crosses the VI from bottom to top, it thus provides a bearish signal. Market entry occurs when the prices fall below the bar where the cross happened. Crosses between +VI and -VI often trigger interesting directional moves.
Instead of using the two lines, some analysts build an indicator calculated as the difference between the +VI and the -VI.
This way, you get a single line above its equilibrium line, which signals a bullish trend.
When it is below its equilibrium line, bearish trend. It provides a bullish signal when it moves above its balance line.
We have a bearish signal when it goes below that line.
It allows identifying interesting positive/negative divergences regarding the price trend.
Others have modified the Vortex Indicator’s formula to include any gaps. Others combine Vortex’s signals with other indicators that measure market volatility.
Vortex Indicator Code for TradeStation and MultiCharts
This is the code of the Vortex Indicator for TradeStation and MultiCharts:
Inputs: Length( 14 ) ; variables: VMPlus( 0 ), VMMinus( 0 ), VMPlusSum( 0 ), VMMinusSum( 0 ), TR( 0 ), TRSum( 0 ), VIPlusSumRge( 0 ), VIMinusSumRge( 0 ) ; VMPlus = AbsValue( High – Low ) ; VMMinus = AbsValue( Low – High ) ; VMPlusSum = Summation( VMPlus, Length ) ; VMMinusSum = Summation( VMMinus, Length ) ; TR = TrueRange ; TRSum = Summation( TR, Length ) ; if TRSum <> 0 then begin VIPlusSumRge = VMPlusSum / TRSum ; VIMinusSumRge = VMMinusSum / TRSum ; end ; Plot1( VIPlusSumRge, “VI+Sum/Rge”, Green ) ; Plot2( VIMinusSumRge, “VI-Sum/Rge”, Red ) ;
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