Vortex Indicator (VI)

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Vortex Indicator (VI)

The Vortex Indicator (VI) is a trend-following technical indicator that uses two lines—VI+ (uptrend) and VI− (downtrend)—to identify trend direction, confirm existing trends, and signal potential reversals. VI+ and VI− are typically plotted below a price chart and colored (for example) green and red.

Origin

The indicator was introduced by Etienne Botes and Douglas Siepman in 2009.

How it’s calculated

Calculation is performed over a chosen lookback period n (commonly 14–30 periods).

  1. True Range (TR) for the current period:

  2. TR = max(

    • current high − current low,
    • |current high − previous close|,
    • |current low − previous close|
      )

  3. Vortex movements for the current period:

  4. VM+ = |current high − previous low|

  5. VM− = |current low − previous high|

  6. Sum the last n periods:

  7. SUM TRn = sum of TR over n periods
  8. SUM VMn+ = sum of VM+ over n periods

  9. SUM VMn− = sum of VM− over n periods

  10. Compute the indicator lines:

  11. VI+ = SUM VMn+ / SUM TRn
  12. VI− = SUM VMn− / SUM TRn

Repeat these steps each period to plot the VI+ and VI− lines.

Typical settings and adjustments

  • Default/lookback commonly used: 14 periods.
  • To reduce whipsaws and false signals in choppy markets, increase n (for example, 25 periods).
  • Shorter n makes the indicator more sensitive; longer n smooths it.

Interpretation and trading signals

  • Bullish signal (trend reversal to uptrend): VI+ crosses above VI− and remains on top.
  • Bearish signal (trend reversal to downtrend): VI− crosses above VI+ and remains on top.
  • The line that is on top generally indicates the dominant trend direction.

Practical use and cautions

  • Crossovers can generate false signals in sideways or noisy markets. Confirm with price action and other indicators (moving averages, RSI, volume, support/resistance).
  • Typically used with a candlestick or price chart, with VI lines displayed beneath the price.
  • Look for clear separation after a crossover and consider additional confirmation (price closing beyond a recent swing high/low, increased volume) before entering a trade.
  • Adjust the period length to match the asset’s volatility and your timeframe.

Key takeaways

  • The Vortex Indicator compares directional movement over a period to identify prevailing trend direction.
  • VI+ above VI− indicates bullish dominance; VI− above VI+ indicates bearish dominance.
  • Use longer lookback periods to reduce false signals and combine VI signals with other technical tools for confirmation.