Vortex indicator is a kind of crossover oscillator indicator.
Being crossover oscillator indicator, Vortex indicator was created by Etienne Botes and Douglas Siepman with the main objective of helping traders to know whether the market is in uptrend or downwtrend through crossover points.
According to Etienne Botes and Douglas Siepman, the vortex indicator is composed of two curve lines,that is uptrend which is positive(+VI) and downtrend which is negative(-VI).The uptrend line is normally indicated using the blue/green line while the downtrend line is indicated using the red line. These two curve lines will enable traders to know when to buy and to sell when they are crossing over each other thus making vortex indicator to be considered as a crossover indicator for the oversold and overbought market conditions.
According to Etienne Botes and Douglas Siepman, the values of Vortex indicator is calculated using the following steps;
-By calculating the positive and negative trend movements,that is of +VI and -VI based on previous high and low of current and previous periods as follows;
+VM=high current period value -low previous period value
-VM=low current period value- high previous period value
+VM14 = 14 PERIOD sum of +VM
-VM14=14 PERIOD sum of -VM
-By calculating the true range of the last 14 periods as follows;
TR14= 14 period sum of TR
-The result will be as follows;
+VI 14= +VM14/TR14
-VI 14 = -VM 14/TR14
Therefore, since vortex indicator which is based on crossover on the overbought and oversold in the market has two crossover lines,that is the green/blue line and the red line.The blue/green line representing the +VI while the red line representing the -VI. It therefore follows that when the green line(+VI) crosses above the red line from below at below 0.8, that will be an indication of an oversold in the market thus signaling the trader to close any sell position and open a buy position since the market will start moving upwards while when the red line(-VI) crosses below the green line from above at above 1.2,that will be an indication of an overbought in the market thus signaling the trader to close any buy position and enter a sell position since the market will start moving downwards.This is indicated as from the candle sticks chart below;
From the candle sticks chart above,there are 4 points,that is point A,B,C and D. Point A is the point at which the -VI has crossed below the +VI while point B is the point at which the +VI has crossed above the -VI. Point C which is the blue line represents the +VI while point D which is red line represents the -VI. All these points are represented by the red arrow respectively.At point A ,the red line which is the -VI has crossed below the blue line (+VI) from above at above 1.2 thus an indication of an overbought market thus signaling the trader to close any buy position and enter a sell position since the market is starting to move downwards at that point. On the other hand, at point B,the blue line which is the +VI has crossed above the red line (-VI) from below at below 0.8 thus an indication of an oversold market thus signaling the trader to close any sell position and enter a buy position since the market is starting to move upwards at point.
Recommendation: If you are a day trader,just use 1 min,5 min,15 min and 30 min time frame while if you are a swing trader just use 1 hour and above time frame if you want vortex indicator to work well for you
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