When it comes to technical analysis, the vortex indicator is another technical indicator that is used by a lot of traders for technical analysis. However, it is not very common as it is seen as a relatively complex technical indicator. The vortex indicator is basically an indicator that is used to gauge when a trend is reversing or when a trend is losing momentum or when a trend is coming to an end. The vortex indicator on tradingview has 2 lines which represents the vortex negative (red line) and the vortex positive (blue line).
The way the vortex indicator works is that it plots two oscillating lines which like I mentioned above, are the vortex negative (red line) and the vortex positive (blue line). The vortex positive which is the blue line identifies positive trend movement on the cryptocurrency price chart, and the vortex negative which is the red line identifies negative price movement on the cryptocurrency price chart. An entry or exit signal is determined from the cross between the vortex positive and vortex negative lines. The vortex indicator does not have a neutral setting which means that the vortex indicator will always identify positive or negative price movement.
How it is calculated
The vortex indicator pays attention to the positive price movement and negative price movement by making use of the highs and lows of the previous periods.
When it comes to calculating vortex indicator, there are three parts to consider; the positive price movement and negative price movements on the high and lows of the previous 2 periods, true range, and the normalization of the positive and negative trend movements which is divided by the true range.
The formula is as follows;
Part one
+VM = current high - previous low
-VM = Present low - previous high.
+VM20 = 20-day sum of +VM
-VM20 = 20-period sum of -VM
20 is the number of periods
Part 2 - the true range:
Current high - current low
Current high - previous close
Current low - previous close
True Range (20) = 20-period sum of True range
Part 3 – normalization of the positive and negative trend movements
+VI (20) = +VM20/TR20
-VI (20) = -VM20/TR20
Is the vortex indicator reliable?
The vortex indicator is regarded as a reliable technical indicator that is known for its accurate signals and also buy and sell signals as well. When it comes to detecting trend reversals and confirm the current trend, the vortex indicator tends to produce accurate signals by utilizing its two oscillating lines crossing. Like a lot of other indicators, the downside of the vortex indicator is that is can also create a lot of false signals especially when using it on short-periods. However, when using it on longer-periods, the signals tends to be few but considered very accurate. Nonetheless, no single indicator is perfect, and even though the vortex indicator is seen as a very reliable indicator, it is important to make use of the vortex indicator with other great indicators for signal confirmation.