28. Vortex Indicator (VI)

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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.

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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)

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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.

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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.

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5. How is Vortex Indicator calculated or derived?

1. Calculate VM+ and VM− for each period.

2. Compute the True Range (TR) for the same periods.

3. Sum VM+ and VM− and divide each by the sum of TR over N periods (e.g., 14).

4. Plot VI+ and VI− as two lines on a chart.

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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.

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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.

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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.

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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.

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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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