Vortex Indicator (Formula, Usage and Strategy)

Vortex Indicator

Etienne Botes and Douglas Siepman developed the indicator. The vortex indicator consists of two oscillating lines. In these oscillators, one to identify positive trend movement and the other to identify negative price movement. The indicator is a volatility-adjusted trending indicator. So, the Indicator is a unique directional indicator that gives clear signals. It defines the overall trend. As with all technical tools and indicators, the Indicator can be used on a range of securities and across multiple timeframes.

Vortex Indicator FAQ

What is Vortex Indicator?

As I have mentioned above that the Vortex indicator is a volatility-adjusted trending indicator. This helps traders to determine the short-term trend as well as spot trading opportunities. The indicator is composed of two lines with a straight forward application. The indicator borrows aspects from other technical indicators like Average true range and Average directional index.

How does a vortex indicator work?

The Vortex Indicator plots two oscillating lines, one is to identify the positive trend while the other one is to define the negative price trend. Therefore, crosses between the lines generate buy-sell signals. So, there are no neutral settings for the indicator, it always produces bullish bearish bias. The indicator is quite easy to interpret.

What is Vortex trading?

Crossovers between the two oscillators trigger buy-sell signals. When the VI+ crosses the VI- from below and goes above to take the top position, it is uptrend. Reversely, when the VI- cross the VI+ to go above the VI+, traders can assume a downtrend is coming up.

How to Calculate the Vortex Indicator?

The calculation of the indicator is divided into four parts. These are as follows:

1. True range (TR) is the greatest of:

  • Current high – current low
  • Current high – previous close
  • And, Current low – previous close

2. Uptrend and downtrend movement:

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

3. Parameter length (n)

Decide on a parameter length (between 14 and 30 days is common)

  • Sum the last n period’s true range, VM+, and VM-:
  • Sum of the last n periods’ true range = SUM TRn
  • And, Sum of the last n periods’ VM+ = SUM VMn+
  • Sum of the last n periods’ VM- = SUM VMn−

4. Create the trendlines VI+ and VI-

  • SUM VMn+/SUM TRn = VIn+
  • SUM VMn-/SUM TRn = VIn−

So, Repeating this process daily forms the VI+ and VI- trendlines there.

How to Set the Vortex on Trading Terminal?

The traders can find the Vortex indicator In the Zerodha Kite platform, under the STUDIES section. It is also available in the Kite mobile App. The Period is 14 and if you can change this value then you can change it. The OverBought is 1.1 and the OverSold is 0.9 you can change these values also. The traders can check how they attached the indicator in Reliance Industries shares price chart. The traders can attach the Vortex indicator on to any charts likes daily, weekly, monthly or intraday.

kite

Vortex Indicator Interpretation from Upstox and Fyers

vortex indicator

The attached chart is based on the script of GRANULES. Here, I’ve applied the Vortex indicator with the 1-month time frame. Vortex basically identifies the divergence as well as the market trend.

vortex indicator fyers

As you can see the particular indicator is composed of two single lines, uptrend and downtrend. Here, the red line reflects the downtrend and the green or blue line shows the uptrend. Basically, the indicator confirms the market trend.

How to Trade with Vortex Indicator

  • The Vortex Indicator can be used to identify the start of a trend and subsequently affirm trend direction.
  • The main part of this indicator, a simple cross of the two oscillators can be used to signal the start of a trend.
  • After this crossover, the trend is up when +VI is above -VI and down when -VI is greater than +VI of this indicator.
Vortex indicator
  • Another part of this indicator, a cross above or below a particular level can signal the start of a trend and these levels can be used to affirm trend direction. The two of the indicator lines fluctuate above and below 1.0.
Vortex indicator crossover

Now, I will show you how you can cut down the extra noise. Here, in this chart below, I have added the Supertrend (10,3) indicator with Vortex. I pick the buy Signal when the Supertrend signal trigger and when the VI+ crosses VI- from below and goes above. The opposite thing happens in the case of a sell signal.

Supertrend with Vortex

The next strategy I am going to describe is the trend line. Here, I draw a trend line that connects two of the peaks here. When a big bullish candle crosses the trendline in the upward direction and at the same time VI+ crosses the 1 level, the trend considers bullish. On the other side, see a candle made a bullish move, and the VI- also crosses the 1 level, the market went down.

Buy Sell Signals

Conclusions :

The Vortex Indicator is one of the unique directional indicators. This indicator provides clear signals and defines the overall trend. In all technical analysis tools and indicators, the Vortex indicator can be used on a range of securities and across various time frames. For an example, this indicator can be applied to weekly and monthly charts to define the bigger trend. Also, then applied to daily charts to generate signals within that trend. Using the daily chart, the traders are could focus exclusively on bullish signals when the Vortex indicator on the weekly chart indicates an uptrend. Mainly, the traders are can focus on bearish signals when this indicator on the daily chart is in bear mode.

Author: Ankita Sarkar

Ankita is a graduate in English language and she has also done her MBA from the Calcutta University. She has a high knack in the stock markets. She is a NISM certified Research Analyst. An experienced stock market content writer Ankita is also trading successfully on her own account.

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