28. Vortex Indicator (VI)
1. What is Vortex Indicator (VI)?
The Vortex Indicator (VI) is a trend-following technical indicator designed to identify the start and direction of a trend. It consists of two lines — VI+ and VI− — that capture upward and downward price movement over a specified period, helping traders detect bullish or bearish trend shifts.
2. Components of Vortex Indicator?
VI+ (Positive Vortex Line): Reflects upward movement strength.
VI− (Negative Vortex Line): Reflects downward movement strength.
True Range (TR): Measures overall price volatility.
Vortex Movement Calculations:
VM+ = |Current High − Previous Low|
VM− = |Current Low − Previous High|
Then:
VI+=∑VM+∑TR,VI−=∑VM−∑TRVI+ = \frac{\sum VM+}{\sum TR}, \quad VI− = \frac{\sum VM−}{\sum TR}
(over a typical 14-period window)
3. Pros and Cons of Vortex Indicator?
Pros:
Clearly signals trend direction changes via crossovers.
Simple to interpret and visually intuitive.
Works well in strong trending markets.
Cons:
Lags in choppy markets, giving false crossovers.
Doesn’t indicate trend strength — only direction.
Requires confirmation with other indicators.
4. What is the purpose of Vortex Indicator in stock analysis?
To detect the beginning of a new trend.
To distinguish between bullish and bearish momentum.
To provide entry and exit signals based on VI+/VI− crossovers.
5. How is Vortex Indicator calculated or derived?
Calculate VM+ and VM− for each period.
Compute the True Range (TR) for the same periods.
Sum VM+ and VM− and divide each by the sum of TR over N periods (e.g., 14).
Plot VI+ and VI− as two lines on a chart.
6. When should traders use Vortex Indicator?
To confirm or initiate trades at the start of a trend.
In trend-following strategies across all timeframes.
To filter out trades during low-momentum or indecisive markets.
7. What are the limitations or risks of using Vortex Indicator?
Whipsaws in sideways markets.
May lag behind actual trend start due to smoothing.
Requires tuning (e.g., adjusting period length) for different assets.
8. What are common mistakes when interpreting Vortex Indicator?
Acting on every crossover without context or confirmation.
Using VI in range-bound markets, resulting in false signals.
Ignoring support/resistance levels and broader price structure.
9. How can Vortex Indicator be combined with other tools for better accuracy?
Combine with ADX to confirm trend strength.
Use with moving averages to validate direction.
Pair with volume analysis or RSI to time entries more precisely.
10. How do professional traders interpret Vortex Indicator differently from beginners?
Professionals:
Use VI crossovers with confluence from trend or momentum indicators.
Adjust VI period settings for asset volatility.
Confirm with price action and volume behavior before acting.
Beginners:
Treat every crossover as a buy/sell signal.
Use VI without filtering through trend or market context.
Rely on default settings across all conditions.
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