The Vortex Indicator – A Simple Trend Tool

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The Vortex Indicator – A Simple Trend Tool

The Vortex Indicator helps isolate trends, which can aid new traders in determining when a new trend is likely underway. The Indictors is based on a two lines–an uptrend line and a downtrend line. When one crosses above the other it indicates that trend (up or down) has taken over. It is also used to spot price congestion, so you can avoid taking trend trades during that time.

Vortex Indicator

The Vortex Indicator is composed of two lines–typically colored green and red, and labeled VI+ and VI-, representing up moves versus down moves.

When the red line crosses above the green line it indicates a downtrend could be beginning on the timeframe being watched. As long as the red line stays above the green line, the downtrend is in effect.

When the green line crosses above the red line it indicates an uptrend could be beginning. As long as the green line stays above the red line, the uptrend is in effect.

Figure 1 shows the Vortex Indicator in action on a 15-minute chart of the USDJPY.

Figure 1. USDJPY with Vortex Indicator

Over this period the pair was in an overall uptrend, so the indicator was effective in isolating the major trending moves higher and also the pullback.

Vortex Indicator Variables

The look back period for the indicator can be adjusted. In figure 1 it is set to 20 (notice it says +VI 20). This means 20 price bars are calculated into the indicator. Change it to 14 and 14 price bars are included in the calculation.

14 is the commonly used look back period, although for short-term trading this may provide too many whipsaw signals.

Increasing the look back period smoothes out the lines, resulting in fewer crossovers. Decreasing the look back period results in more crossovers. Depending on your trading style, you’ll need to test which look back period works best for you. You may find different look back periods work well on some assets but not others. This means you may want to use different settings for different assets.

Spotting Congestion

When both lines are near 1.00 and/or moving back and forth across each other, it notifies you that no trend is present at that time. If a trend trader it is best to not trade during these times.

Avoid trend trading at times when there is little separation between the two lines. When the two lines have more separation between them it indicates a stronger trend is present, and may warrant trading.

Figure 2 shows how the Vortex Indicator looks in both a trending and sideways market.

Figure 2. EURUSD with Vortex Indicator

Final Word

This indicator isn’t going to make you a star trader. It is prone to providing false signals, and reversal signals may also appear rather late in a move. Adjusting the settings may help reduce the number of false signals. The indicator works best in trending markets, but also helps show you when the market isn’t trending. Look for crossovers and separation to indicate trend trades; tightly intertwined lines indicate a lack of trend.

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Forex Vortex Indicator

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Forex Vortex Indicator

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Vortex Trend Retracement Strategy: How To Identify Trend Retracement and Reversal

High accuracy Vortex Trend Retracement Trading System and Strategy. These strategies are popular because they enable you to trade with the trend.

But, the main difficulty you will have is how to determine whether a price is performing a retracement or a major reversal.

Professional traders love retracements.

When a trend retraces, it offers a potential low-risk/high-reward entry into the market.

A trader looking for retracement opportunities has one question on their minds.

How much does the trend need to retrace…?

This is a tough question.

Shallow retracements often fail, except in the strongest trends. Deep retracements might be a reversal signal in disguise.

Both scenarios are tricky.

The Vortex Indicator helps isolate trends, which can aid new traders in determining whether a price is performing a RETRACEMENT or a major REVERSAL.

The Vortex Indicator is composed of two lines–typically colored GREEN and RED, and labeled VI+ and VI-, representing up moves versus down moves.

When the red line crosses above the green line it indicates a downtrend could be beginning on the timeframe being watched. As long as the red line stays above the green line, the downtrend is in effect.

When the green line crosses-above the red line it indicates an uptrend could be beginning. As long as the green line stays above the red line, the uptrend is in effect.

There are various practical methods to deal with this question of TREND RETRACEMENT.

Some traders look for retracements to moving averages like in the 5/8/21/50 trading strategy. Others look for Fibonacci retracements based on a percentage of a prior swing.

Among the retracement swing trading strategies, Vortex Trend Retracement System is a particularly reliable and effective method.

This is how I use Vortex Trend Retracement System.

  • Best Time Frames: H1, H4, and Daily
  • Recommended Currency Pairs: Bitcoin, EURUSD, and GBPUSD
  • Vortex
  • Fisher
  • Moving Average
  • Market is uptrend
    • (Price upward and above 50 SMA)
    • Fisher indicator green color
  • Green Vortex line crosses above the red line
  • Market is downtrend
    • (Price downward and below 50 SMA)
    • Fisher indicator red color
  • Green Vortex line crosses below the red line

Market Reversals And How To Spot Them

A reversal is a change in the direction of a price trend, which can be a positive or negative change against the prevailing trend.

On a price chart, reversals undergo a recognizable change in the price structure.

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A reversal is also referred to as a “TREND REVERSAL,” a “rally” or a “correction.”

  • An uptrend, which is a series of higher highs and higher lows, reverses into a downtrend by changing to a series of lower highs and lower lows.
  • A downtrend, which is a series of lower highs and lower lows, reverses into an uptrend by changing to a series of higher highs and higher lows.

Take a look at the image below.

This is how I use Vortex Trend Retracement System to spot TREND REVERSAL.

With this Vortex Trend Retracement System, it’s possible for you to distinguish retracements and reversals as they are happening.

You will not be right 100% of the time but you can get it right more often than not.

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