Vortex Indicator - VI

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DEFINITION of 'Vortex Indicator - VI'

An oscillator composed of two lines--an uptrend line (VI+) and a downtrend line (VI-). These lines are typically colored red and green respectively. Vortex indicator is used to spot trend reversals and confirm current trends. An uptrend or buy signal occurs when VI+ crosses above VI-. A downtrend or sell signal occurs when VI- crosses above VI+.

The calculation for the indicator is divided into three parts:

1. Uptrend and downtrend movement: 
 
  • VM+ = Current high minus prior low
  • VM- = Current low minus prior high
  • VMx+ = x-period Sum of VM+
  • VMx- = x-period Sum of VM-
Where "x" is the number of price bars or periods the indicator will look at (between 14 and 30 is common).
 
2. True Range (TR) is the greatest of:
 
  •   Current high minus current low
  •   Current high minus previous close (absolute value)
  •   Current low minus previous close (absolute value)
 
TRx = x-period Sum of TR
 
3. Normalize uptrend downtrend movement:
 
  • VIx+ = VMx+/TRx
  • VIx- = VMx-/TRx

INVESTOPEDIA EXPLAINS 'Vortex Indicator - VI'

Developed by Etienne Botes and Douglas Siepman, the traditional application of using VI- and VI+ crossovers can result in a number of false trade signals when price action is choppy. Increase the number of periods used in the indicator to reduce this, for example, using 25 periods instead of 14.

Another approach is to wait for the indicator to cross a key level following a VI-/VI+ crossover. When VI+ crosses above VI-, only take a long trade once VI- crosses below 0.9 and VI+ crosses above 1.10. When VI- crosses above VI+, only take a short trade (or exit longs) once VI+ crosses below 0.9 and VI- crosses above 1.10.

When VI+ is above VI- it confirms a price uptrend, and when VI- is above VI+ it confirms a price downtrend.

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RELATED FAQS
  1. Why is the Vortex Indicator (VI) important for traders and analysts?

    Doug Siepman and Etienne Botes developed the vortex indicator to anticipate reversals in price trends. They believed that ... Read Full Answer >>
  2. What is a common strategy traders implement when using the Vortex Indicator (VI)?

    Traders primarily use the vortex indicator to spot trends, gauge trend strength and spot exit / entry points. The trading ... Read Full Answer >>
  3. What are the best technical indicators to complement the Vortex Indicator (VI)?

    To find out the intended trading strategy that the vortex indicator (VI) was created for – including complementary technical ... Read Full Answer >>
  4. What is the Vortex Indicator (VI) formula and how is it calculated?

    The vortex indicator (VI) utilizes two different oscillators (+VI and -VI) that capture upward and downward movement in price ... Read Full Answer >>
  5. How do I use the Vortex Indicator (VI) to create a forex trading strategy?

    The vortex indicator is composed of two oscillators: a downtrend oscillator (VI-) and an uptrend oscillator (VI+). It is ... Read Full Answer >>
  6. What is the difference between a drawdown in banking and a drawdown in trading?

    The term "drawdown" appears in both the banking world and in the arena of trading, but it has completely different meanings ... Read Full Answer >>
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