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In the Technical Analysis of Stocks and Commodities magazine, in 2010, a Vortex Indicator was presented. The market technicians who have introduced it come from Switzerland and are named Etienne Botes and Douglas Siepman. Their work was based on J. Welles Wilder discoveries.
The Vortex indicator has become quite popular since then. It belongs to the trend following type of indicators. The signals it produces are highly accurate.
Key Takeaways🔑
| →The Vortex Indicator is a trend-following technical tool that identifies trend direction and potential reversals. |
| →It consists of two oscillating lines: +VI for positive price movement and -VI for negative price movement. |
| →Pairing the Vortex Indicator with other technical tools, like the MACD, can increase its effectiveness and reduce false signals. |
What is the Vortex indicator?
The Vortex indicator consists of two oscillating lines. They help to confirm the trend and predict the change in its direction.
One line of the vortex indicator identifies positive price movement (+VI) and the other one negative (-VI). Crucial points are the ones where the lines cross each other. These crossings give buy or sell signals.
The vortex indicator calculations are based on the lows and highs from a specific period of time. Positive trend movement is determined by the length between the recent low and current high. The distance between the last high and current low marks negative trend movement. The distance is bigger when the price movements are stronger.
The indicator's period can be adjusted according to the needs. The results of the readings are presented in the form of the two oscillating lines. Their crossovers produce the signals to enter the trade, however, it might be a good idea to use additional indicators to avoid false signals and whipsaws.
How to add the Vortex indicator to the IQ Option chart
To add the Vortex indicator to your chart, you should be logged in to the IQ Option account. Choose the asset and set the chart. Then, click on the Chart analysis icon and go to the Indicators tab. You will find the group of momentum indicators. The vortex indicator will be among them.
You can also write the name of the indicator you are looking for in the search box on top of the window.
Each indicator comes with the default settings. The overbought area is set at 1.1, the oversold zone at 0.9. If you are using a 5-minute chart, choose the period of the main line of value 21 or 34.
Setting a longer period will result in fewer crossovers visible on your chart, but it will be less sensitive for whipsaws. If you choose a shorter period, you will get more crossovers, but more false signals as well.
How does a Vortex indicator work?
You already know that the moments when two lines of the vortex indicator cross each other are the most important points. If you notice that +VI line crosses above -VI, open a buy trade as the direction of the price movement is about to change. If +VI crosses below -VI then it is signal to open a sell trade. Just be careful. The best way to use the vortex indicator is to connect it with other technical tools. Don't use it as a signal generator on its own. This classic interpretation works enough to determine the trend but may generate many false signals during periods of consolidation.
Using the Vortex indicator together with the MACD on IQ Option
It is a good idea to use an extra indicator to confirm the entry points for your transactions. The Moving Average Convergence Divergence creates an ideal pair with the vortex indicator.
It is recommended that you leave the MACD settings as default. You can experiment, though, with the vortex indicators' settings.
Search for the crossovers from both indicators. When they occur at a similar time (it doesn't need to be an exact time), you can be pretty sure the signal to open a trading position is strong. Trading the vortex with the MACD binary options is a great choice.
Open a buy position when the crossovers take place after a long downtrend. They should be close enough to each other, but they do not have to happen simultaneously. 3 to 4 candles apart is a reliable length. With a 5-minute time frame, you can hold your transaction open for about 30 minutes.
Open a sell trade when the crossovers of both indicators happen after the uptrend. Again, you can keep your position open for around 30 minutes if you are using a 5-minute time frame.
Pros and Cons of the Vortex Indicator📊
Pros:
- 📈 Effective in identifying trends and potential trend reversals
- 🔧 Customizable settings to adapt to various trading styles
- 💡 Easy to interpret and use, even for beginners
Cons:
- 🚫 May produce false signals during periods of consolidation
- ❗️ Not recommended as a standalone tool for generating trading signals
- 🧩 Requires combining with other technical indicators for optimal performance
| Vortex Indicator | MACD |
|---|---|
| Identifies trend direction and potential reversals. | Reveals changes in the strength, direction, momentum, and duration of a trend. |
| Based on the highs and lows of a specific period of time. | Calculates the difference between two Exponential Moving Averages (EMAs). |
| Requires additional indicators to improve effectiveness and reduce false signals. | Can be used in conjunction with other indicators for better trading signals. |
Conclusion
The vortex indicator is based on the work of J. Welles Wilder. He has invented other technical indicators as well. The vortex is the trend-following indicator which consists of two oscillating lines. The points of their crossovers indicate good entry points.
Use another indicator, for example, the MACD, to avoid false signals. It will increase your chances of success.
Remember, there is a free practice account on the IQ Option platform. You can use it for as long as you start feeling comfortable with a specific strategy. Move to the live account afterwards.
Tell us about your experience in trading with the vortex indicator. You will find the comments section below which is a perfect place to share your comments.
Good luck!
Frequently Asked Questions (FAQ)❓
- Q: Can the Vortex Indicator be used for short-term trading?
A: Yes, the Vortex Indicator can be used for short-term trading by adjusting the settings accordingly. However, it's essential to use it in combination with other technical tools to minimize false signals. - Q: How can I reduce the number of false signals generated by the Vortex Indicator?
A: Pairing the Vortex Indicator with other technical indicators, such as the MACD, can help confirm trading signals and reduce false signals. - Q: Is the Vortex Indicator suitable for all types of assets?
A: The Vortex Indicator can be applied to various asset types, including stocks, commodities, forex, and cryptocurrencies. However, its effectiveness may vary across different markets. - Q: Can the Vortex Indicator be used for trading on different timeframes?
A: Yes, the Vortex Indicator can be used on multiple timeframes by adjusting the settings. Keep in mind that shorter timeframes may generate more false signals, while longer timeframes can be less sensitive to whipsaws. - Q: How can I practice using the Vortex Indicator before trading with real money?
A: Most trading platforms, including IQ Option, offer a free practice or demo account where you can test and refine your trading strategies using the Vortex Indicator before trading with real money.