Vortex Indicator - VI

AAA

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.

RELATED TERMS
  1. Security Market Indicator Series ...

    An index that uses the performance of a sampling of securities ...
  2. Nasdaq-100 Pre-Market Indicator

    An index of trading activity based on pre-market open prices ...
  3. Chaikin Oscillator

    An oscillator which measures the accumulation distribution line ...
  4. Indicator

    Indicators are statistics used to measure current conditions ...
  5. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  6. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
Related Articles
  1. Active Trading Fundamentals

    Confirming Price Movements With Volume Oscillators

    Use this indicator to validate a change in price direction and moving averages.
  2. Technical Indicators

    How To Profit From The "Night and Day" Aroon Oscillator

    “Aroon” is a Sanskrit word loosely translated as the transition from night to day, appropriate for a measure that attempts to determine when a trend is about to develop into something of substance. ...
  3. Technical Indicators

    Use The McClellan Oscillator To Measure Market "Breadth"

    How broad is the market? And, once we answer that question, how can we use that answer to our advantage?
  4. Mutual Funds & ETFs

    Introduction To Coincident And Lagging Economic Indicators

    Investors can learn a lot, or very little, from these indicators once they know how to use them.
  5. Active Trading

    Accumulative Swing Index And The McClellan Oscillator

    These indicators serve as confirmation for those of us who need to double check our findings on a regular basis.
  6. Technical Indicators

    Discovering Keltner Channels and the Chaikin Oscillator

    It's time to acquaint yourself with some lesser-known yet effective technical indicators.
  7. Forex Education

    Premier Stochastic Oscillator Explained

    This oscillator has been used since the 1950s by traders and investors to anticipate areas where the market may change direction.
  8. Forex Education

    Kairi Relative Index: The Forgotten Oscillator

    Though an older indicator, Kairi can still be a valuable tool for experienced investors.
  9. Active Trading

    An Introduction To Oscillators

    Find out how this indicator may help improve the average investor's entry and exit points.
  10. Active Trading

    Candlesticks And Oscillators For Successful Swing Trades

    Take advantage of short-term price moves by pinpointing reversals.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center