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

BREAKING DOWN '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.

RELATED TERMS
  1. Vienna Stock Exchange (WBAG) .VI

    Also known as the Wiener Borse AG, this exchange is located in ...
  2. Signal Line

    A moving average plotted alongside a technical indicator and ...
  3. Higher Education Act of 1965 – ...

    A law designed to strengthen the educational resources of the ...
  4. Golden Cross

    A crossover involving a security's short-term moving average ...
  5. Death Cross

    A crossover resulting from a security's long-term moving average ...
  6. Downtrend

    Describes the price movement of a financial asset when the overall ...
Related Articles
  1. Trading

    Use the Vortex Indicator Trading Strategy To Profit

    The vortex indicator is a relatively new technical indicator, introduced in 2010, that is gaining traction with traders and market technicians.
  2. Trading

    How To Interpret The Volume Zone Oscillator

    Introduced in 2009, the Volume Zone Oscillator (VZO) is gaining traction with traders and technicians.
  3. Trading

    Four Commonly Used Indicators In Trend Trading

    No single indicator can punch a ticket to market riches, but here are four that remain popular among trend traders.
  4. Trading

    The Four Most Common Indicators in Trend Trading

    Here are the top indicators and tools trend traders use to establish when trends exist and find entry/exit points.
  5. Investing

    Using Moving Averages to Buy ETFs

    Learn how to use moving averages to enter and exit trades in ETFs, and understand some popular technical setups using moving averages.
  6. Investing

    Distinguish A Stock Price Correction With A Price Trend

    We explain how you can use trend lines to help avoid market corrections.
  7. Retirement

    Miami, Florida: The 5 Best Retirement Communities

    Learn about some of the best retirement communities in Miami featuring some of the most luxurious facilities in the United States.
  8. Managing Wealth

    Goldman Raising Money for Private Equity Fund (GS)

    Amid increased regulatory pressures, the high value private equity fund launch is a significant initiative by Goldman Sachs after 2008 crisis
  9. Investing

    5 Stocks With Bullish MACD Crossovers for 2016 (COT, OCLR)

    Take a technical analysis look at five stocks that may be heading to the upside in 2016, based on a bullish MACD crossover buy signal.
  10. Trading

    Falling Stocks Still Giving Short Trade Signals

    These stocks are in downtrends, and still flashing short trade signals.
RELATED FAQS
  1. How do I use the Vortex Indicator (VI) to create a forex trading strategy?

    Learn how to use the vortex indicator to create a forex trading strategy to identify long or short entries along with a volume-weighted ... Read Answer >>
  2. What is a common strategy traders implement when using the Vortex Indicator (VI)?

    Take a look at some basic trading strategies that can be implemented with the vortex indicator, a technical tool used to ... Read Answer >>
  3. What is the Vortex Indicator (VI) formula and how is it calculated?

    Find out how to calculate the vortex indicator, a multiple-oscillator trending tool that was created by Etienne Botes and ... Read Answer >>
  4. What are the best technical indicators to complement the Vortex Indicator (VI)?

    Investigate possible complementary indicators to use along with the vortex indicator, including chart pattern recognition ... Read Answer >>
  5. Why is the Vortex Indicator (VI) important for traders and analysts?

    Find out why the vortex indicator is unique among technical indicators and how long-term investors and short-term traders ... Read Answer >>
  6. What is the difference between a Golden Cross and a Death Cross Pattern?

    Learn the difference between the golden cross and the death cross, both of which are considered important technical indicators ... Read Answer >>
Hot Definitions
  1. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  2. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  3. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  4. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  6. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
Trading Center