When it comes to trading there are endless strategies and indicators to choose from. These choices may not be very easy for those who are new to trading. Even the experienced may have trouble keeping up with the latest developments.
This indicator is used by traders to help identify potential market reversals.
In this blog post, we will explore the Vortex Indicator and how it can be used in algorithmic trading.
We will also discuss the potential benefits and risks of using this indicator in your trading strategy.
What is a Vortex Indicator?
The Vortex Indicator is a technical indicator to identify potential reversals in the market. The indicator is based on the premise that when the market is in a state of indecision, it will often form a vortex, which can be used to signal a possible reversal.
The Vortex Indicator consists of two lines, the Vortex VI + line, and the Vortex VI - line. These lines are based on the highs and lows of the past three days.
The indicator is considered to be bullish when the Vortex VI + line is above the Vortex VI - line, and bearish when the Vortex VI - line is above the Vortex VI + line.
How to use a Vortex Indicator?
The Vortex Indicator is designed to identify the start of a new trend or the continuation of an existing trend.
The Vortex Indicator can be used on any time frame from 5 minutes up to monthly charts. The indicator is composed of two lines, the Vortex VI + line, and the Vortex VI - line. The Vortex VI + line is calculated using the High prices of each period, while the Vortex VI - line is calculated using the Low prices of each period.
The two lines are then plotted around a centerline which is set at 1. When the Vortex VI + line crosses above the Vortex VI - line, it signals a potential buy opportunity. Conversely, when the Vortex VI + line crosses below the Vortex VI - line, it signals a potential sell opportunity.
In addition to signal line crossovers, traders can also look for bullish and bearish divergences between the vortex lines and price action as potential trade setups. The vortex indicator can also be used to confirm trends and trend reversals.
How to create a trading strategy with a Vortex Indicator
There are two ways to create a trading strategy with a Vortex Indicator. The first way is to use the indicator to identify potential entry and exit points for trades. The second way is to use the indicator to confirm other technical indicators or chart patterns.
When using the Vortex Indicator to identify potential trade entry and exit points, it is important to look for crossovers of the indicator lines.
A bullish crossover occurs when the blue line (VI+) crosses above the red line (VI-). This indicates that upward momentum is increasing and may be a good time to enter a long position.
A bearish crossover occurs when the red line (VI-) crosses above the blue line (VI+). This indicates that downward momentum is increasing and may be a good time to enter a short position.
Once in a trade, the Vortex Indicator can be used to help identify exit points as well. If the indicator lines start to diverge after entering a trade, it may be time to exit as this could signal that the current trend is losing strength.
Additionally, if the indicator lines cross back in the opposite direction of the initial trade entry, this could also signal that it’s time to get out of the trade.
The Vortex Indicator can also be used in conjunction with other technical indicators or chart patterns to confirm potential trading signals.
For example, if there is a bullish divergence forming on the MACD indicator, this could be confirmed with a bullish crossover on the Vortex Indicator lines. Likewise, if there is a bearish divergence forming on the RSI indicator, this could be confirmed with a bearish crossover on the Vortex Indicator lines.
Vortex at Traderlands Strategy Creator Tool
You can start creating a strategy by selecting "Vortex V+" and "Vortex V-" from the list. An example strategy is shown in the image below. You can use the Vortex indicator to create a strategy after doing your own research.
Enter Algorithm Rules You Can Add To Strategy Creator
Exit Algorithm Rules You Can Add To Strategy Creator
WARNING: The entry and exit strategies in the images are prepared ONLY for educational purposes to explain how indicators work. It does not guarantee any profit.
When creating an algorithmic trading strategy, a rule set is usually created by using more than one indicator.
Other Indicators can be used with the Vortex Indicator
There are a number of other indicators that can be used in conjunction with the Vortex Indicator to provide traders with even more information about the market.
These include indicators such as the Relative Strength Index (RSI), the Moving Average Convergence Divergence (MACD) indicator, and the Stochastic Oscillator. Each of these indicators can provide valuable insights into the market and can help traders make more informed decisions about their trading strategy.