Vortex Indicator (VI) - Indicator Formula

The Vortex Indicator was first derived by Etienne Botes and Douglas Siepman who first introduced their indicator to the financial markets in 2010.

The Vortex Indicator (VI) consists of two main lines an uptrend line (VI+) and a downtrend line (VI-) Most traders and investors use the indicator to help find trend reversals or help them confirm existing trends.

A vortex pattern may be observed by connecting the lows of an asset’s price bars with the proceeding bars’ highs, and then price bar highs with next days lows.

When VI+ is below VI- and then crosses above VI- to take the lead, a buy signal or bullish opportunity occurs.

When VI- is below VI+ and crosses above VI+ to take the lead, a sell signal or bearish opportunity occurs.

First, calculate the current true range:

Current true range ( TR ) = Maximum absolute value of either:

( current high – current low )

( current low – previous close )

( current high – previous close )

Next, calculate the current upward (positive) and downward (negative) vortex movements:

Current Vortex Movement Up ( VM+ ) = absolute value of current high – previous low

Current Vortex Movement Down ( VM− ) = absolute value of current low – previous high

Choose parameter length (This example uses 21 periods)

Now, sum the last 21 period's True Range, VM+ and VM-:

Sum of the last 21 periods’ True Range = SUMT_R21

Sum of the last 21 periods’ VM+ = SUM_VM21+

Sum of the last 21 periods’ VM- = SUM_VM21−

Finally, divide SUM_VM21+ and SUM_VM21− with the SUM_TR21 to get the Vortex Indicator:

VI21+ =

SUM_VM21+ / SUM_TR21

VI21- =

SUM_VM21- / SUM_TR21

If this process is repeated, the resulting VI21+ and VI21− can be drawn graphically to represent the two lines of the Vortex Indicator.

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