## What is the Vortex Indicator - VI

A vortex indicator (VI) is an indicator composed of two lines - an uptrend line (VI+) and a downtrend line (VI-). These lines are typically colored green and red respectively. A vortex indicator is used to spot trend reversals and confirm current trends.

## Understanding Vortex Indicator (VI)

The vortex indicator was first developed by Etienne Botes and Douglas Siepman who introduced the concept in the January 2010 edition of “Technical Analysis of Stocks & Commodities.” The vortex indicator is based on two trendlines: VI+ and VI-.

## Vortex Indicator Calculations

The calculation for the indicator is divided into four parts.

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

Current high minus current low

Current high minus previous close

Current low minus previous close

2. Uptrend and downtrend movement:

VM+ = Absolute value of current high minus prior low

VM- = Absolute value of current low minus 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

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−

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

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.

## Inferences

The vortex indicator is commonly used in conjunction with other reversal trend patterns to help support a reversal signal. It is integrated into most technical analysis software programs. VI+ and VI- are typically graphed independently below a candlestick chart. The chart below provides an example with lines that indicate changing trend signals on a candlestick chart.

Source: Stockcharts.com

An uptrend or buy signal occurs when VI+ is below VI- and then crosses above VI- to take the top position among the trendlines. A downtrend or sell signal occurs when VI- is below VI+ and crosses above VI+ to take the top position among the trendlines. Overall, the trendline in the top position generally dictates whether the security is in an uptrend or downtrend. (See also: Understand Vortex Indicator Trading Strategies)