Table of Contents
Understanding technical indicators and interpreting them are essential skills for Crypto traders. These indicators help predict a financial asset’s future direction. There are a large number of indicators available in the Crypto market. One of these indicators is the Vortex Indicator, which Douglas Siepman and Etienne Botes created. Let’s have an overview of the Vortex Indicator.
What is Vortex Indicator (VI)?
A new trend indicator called the Vortex Indicator (VI) was created in 2010. This is a leading indicator because its main function is to identify the emergence of new market trends. In addition, the Vortex trend indicator provides buy and sell signals that aid traders in making profitable trades using the Vortex crossover strategy.
There are numerous trend indicators, each with a unique set of underlying formulas and moving averages. This indicator is special since it was created using a water flow model. The name “Vortex” is inspired by an oceanic Vortex. Motions in an oceanic Vortex’s (whirling fluid) wavelengths are predictable, and the inventors used them to create an indicator formula that is simple to understand.
The indicator is termed an oscillating indicator. It consists of two lines: “VI+” and “VI-.” They both have different formulas and indicate bullish and bearish motions. Let’s have a look at the positive and negative Vortex.
Positive Vortex & Negative Vortex
The two indicator lines show the Vortex Indicator’s upward or downward motion. Positive Vortex (VI+) and negative Vortex (VI-) are used to describe upward and downward trends, respectively, while analyzing the Vortex Indicator.
The possibility for upward momentum is indicated when the positive Vortex (VI+) crosses the negative Vortex (VI-), and if VI+ remains above VI-, it reinforces a bullish price trend. However, the opposite is also true: when VI- crosses VI+, it signals possible downward momentum, and if VI- remains above VI+, it reinforces a downward price trend.
Key points to remember in a Vortex Indicator trading strategy
The Vortex Indicator strategy typically involves the following steps that you need to keep in mind:
- Identifying the direction of the trend: The Vortex Indicator lines, which indicate whether the market is bullish or bearish, help to determine the trend’s direction.
- Confirming the strength of the trend: The Vortex Indicator assists traders in ensuring the strength of the trend by calculating the difference between high and low prices.
- Creating buy/sell signals: The Vortex Indicator produces a buy or sell signal when its lines intersect. A buy signal is created when the positive line crosses over the negative line, and when the negative line crosses over the positive line, a sell signal is created.
- Setting stop-loss orders: Traders can place stop-loss orders below the entry price for long positions or above the entry price for short positions at a predefined level to reduce risk.
- Helps monitor the trend: The trader keeps an eye on the trend and adjusts the trade as needed based on the signals from the Vortex Indicator.
NOTE: It’s important to note that while the Vortex Indicator can be a useful tool, it should not be completely trusted as the sole basis for making trading decisions and should be used in conjunction with other technical and fundamental analysis tools.
Pros and cons of a Vortex Indicator
- It is an intriguing indicator. Therefore, using it will give you a competitive advantage over other indicators.
- Second, it’s not too difficult to understand the indicator.
- Thirdly, combining the indicator with other indicators, such as the Average True Range (ATR) and Moving Average Convergence Divergence (MACD), is simple.
- False signals: Sometimes, the indicator tends to provide false signals.
- Not provided in most platforms: The Vortex Indicator is not offered by default on most platforms.
Price patterns in the Vortex Indicator
Price patterns are recurring patterns in the price movement of security that traders look for in order to make informed buying and selling decisions. Some common price patterns include head and shoulders, wedges, triangles, and double tops/bottoms.
The Vortex Indicator can be used in conjunction with price patterns to help traders confirm trend direction and strength. For example, if a trader identifies a head and shoulders pattern and the Vortex Indicator is showing a bearish trend, this could be a signal to sell. On the other hand, if the Vortex Indicator is showing a bullish trend while a double bottom pattern is forming, this could be a signal to buy.
Bottom line thoughts
For traders to make wise purchasing and selling decisions, price patterns are recurring patterns in the price movement of a security. For example, head and shoulders, wedges, triangles, and double tops/bottoms are a few typical price patterns.
To assist traders in determining the direction and strength of a trend, traders might use the Vortex Indicator in conjunction with price patterns. For instance, a signal to sell might be provided if a trader notices a head and shoulders pattern and the Vortex Indicator displays a bearish trend. On the other hand, if a double bottom pattern is forming and the Vortex Indicator indicates a bullish trend, this may be a buy signal.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.