WHAT IS THE Vortex INDICATOR
Vortex Indicator – How to Configure and Use It: The Vortex indicator is an Oscillator that is used to determine the start of a new trend or to confirm a trend that is already underway, as well as its direction and strength. It consists of two lines that capture positive and negative trend movements. These lines are called bullish trend line (VI+) and bearish trend line (VI-).
The essence of the vortex pattern lies in connecting the highest and lowest points of the market price bars or candles. The principle of the indicator is quite simple – the greater the distance between one price bar and the maximum of the next, the greater the bullish movement.
The Vortex indicator was developed by Etienne Botes and Douglas Siepman, inspired by the work of the Austrian inventor Viktor Schauberger. The latter based his ideas and discoveries on a phenomenon he observed in nature. He examined the flow of water, and following the idea, the creators of this indicator suggested that movements within financial markets may resemble the movement of water currents. In addition, the concept of directional movement was taken into consideration by adding the true range to the calculation of the indicator.
How it is configured
This new indicator in our platform enters the category of indicators of <Moment> and can be found in the respective tab of the indicators menu.
The default settings suggest a period of 14 for the main lines and the overbought line at 1.1, in addition to the oversold line at 0.9. You can keep the default settings or change them according to your needs and trading style.
How to trade
Once you apply the Vortex Indicator to the graph, it’s time to read the signs.
By default, the uptrend line is blue and the downtrend line is purple on the chart.
Generally, the line in the main position shows whether the asset is in an uptrend or a downtrend. It is important to pay attention to the crossing points of the two lines, as well as their position in relation to the overbought and oversold lines.
The <buy> signal takes place when line VI+ is below line VI- and crosses it from bottom to top, occupying the top position. A signal of <sale> can be determined when the VI- line is below the VI+ line, and crosses below the VI+ to occupy the upper position between the trendlines.
In the image you can see the Vortex Indicator applied to the EUR/USD chart. The crosses in the example clearly show the change in trend and the distance between the lines reflects the strength of the trend.
As this indicator is quite universal, it can be used for both short and long term trading.
Using the Vortex indicator along with other indicators will help you avoid false trading signals, a good option would be to use the MACD or ADX. Naturally, by combining it with trend indicators you will have the opportunity to receive a more accurate market analysis. It may also be helpful to use a function such as the stop-loss level to manage potential risks.