Vortex Indicator

29 Jun 2017

 

 

The Vortex Indicator (VTX) consists of two oscillators that capture positive and negative trend movement, can be used to identify the start of a trend and subsequently affirm trend direction.

 

Most technical indicators work better with longer time frames. Any parameter may be chosen, be it 13, 21, 34, 55 (Fibonacci numbers). Longer parameters are favored as they are more robust and accurate. Longer timeframes + Longer parameters result in fewer False signals, but the price to be paid is Delayed Entry.

 

VTX can be applied to weekly and monthly charts to define the bigger trend and then applied to daily charts to generate signals within that trend. Using the daily chart, chartists could focus exclusively on bullish signals when VTX on the weekly chart indicates an uptrend.

 

 

 

 

VM Thresholds

 

Traders can reduce whipsaws by setting signal thresholds just above and below 1.0 

 

A bullish signal can be divided into two parts:

 

(1) First, downward trend movement weakens. - VI often weakens and moves below .90 before an uptrend starts.

(2) Second, upward trend movement strengthens. Upward movement strengthens as +VI moves above 1.10 to complete the bullish signal.

 

This bullish signal remains in play until countered with a bearish signal.

 

 

The reverse logic can be applied to generate bearish signals. First, upward trend movement weakens with a move below .90. Second, downward trend movement strengthens with a move above 1.10.

 

 

Keep in mind that VTX is not designed as a standalone indicator. Chartists should use other aspects of technical analysis to confirm VTX, improve the reward-to-risk ratio for a trade setup.

 

References:

 

 Reliability Is Harder Than It Looks: The Vortex Indicator by Etienne Botes and Douglas Siepman 

 

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