Vortex Indicator | Indicator Series

The Vortex indicator’s purpose is to discover trend reversals and was developed around 2009 or 2010 by market technicians, Etienne Botes and Douglas Siepman.  

It was based on the work of J. Wells Wilder, who was the founder of several technical indicators including the Relative Strength Index (RSI).  The Vortex indicator is close relative to Wilder’s Average Directional Index (ADX)

The Vortex indicator consists of two oscillating lines, one being the positive price movement line (VI+), the other is the negative price movement line (VI-). ( Click this link to access an economic calendar for your trading strategies )

The positive (VI+) indicates prices from a prior low to the current high in a certain period of time.  The negative (VI-) indicates prices from a prior high to the current low in the same period of time.

When the positive indicator (VI+) crosses below and then above the negative indicator (VI-), this signals the time to buy or a buying trend.  Conversely, when the negative indicator (VI-) crosses above and then below the positive indicator (VI+), this signals a selling trend.

The Pro To Using The Vortex Indicator

  • It can be used as a stand-alone indicator but performs best when paired with the Moving Average Convergence Divergence (MACD) analysis.
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Moving Average Convergence Divergence (MACD)

  • This uses two lines, a short-term price moving average and a long-term price moving average.
  • The two moving average lines crossing over or below the signal line indicate trend reversals.
  • Add the MACD’s two moving averages to the Vector indicator’s moving average and any possibility of false readings are lowered.

The Con To Using The Vortex Indicator

  • If used as a stand-alone indicator, it is prone to whipsaws and flawed indications over a shorter period of time.  To reduce false trade signals, observe for a longer period of time.

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