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.
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.
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.
General Risk Warning: The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose
We are sorry that this post was not useful for you!
Let us improve this post!
Tell us how we can improve this post?