Introduction to the Vortex Indicator
The Vortex Indicator was first introduced by Etienne Botes and Douglas Siepman in their book “Technical Analysis of Stocks & Commodities”.
It was intended to be a reversal signal indicator that could help traders identify potential trend reversals objectively.
What is the Vortex Indicator?
The Vortex Indicator is a trend reversal indicator which can be used as a reversal signal. It indicates trends and trend reversals by plotting two lines – an uptrend line (VI+) and a downtrend line (VI-).
Trend reversal signals can be confirmed based on how these two lines interact.
How the Vortex Indicator Works?
The Vortex Indicator begins its computation by finding the True Range of price. This could either be the distance of the current high and current low, current high and previous close, or current low and previous close, whichever is higher.
It also takes the distance between the current high and prior low as the measure for the uptrend (VM+), and the distance of the current low and the prior high as the measure for the downtrend (VM-).
It then sums up its measurement of the True Range, its measure of the uptrend, as well as its measure of the downtrend.
It then plots the VI+ line by dividing the sum of the uptrend (VM+) over the True Range. It also plots the VI- line by dividing the sum of the downtrend measure (VM-) over the True Range.
This indicator plots a green line to represent the VI+ line, and a red line to represent the VI- line.
How to Use the Vortex Indicator for MT4
The Vortex Indicator provides trend reversal signals based on the crossing over of the VI+ and VI- lines.
A bullish trend reversal would trigger the VI+ line to cross above the VI- line coming from below. Inversely, a bearish trend reversal would trigger the VI+ line to cross below the VI- line coming from above.
These crossovers between the two lines can be used as the main crossover signal. However, it is better used as a confirmation of a trend reversal in confluence of other price action or indicator-based trend reversal setups.
Buy Trade Setup
When to Enter?
Identify a downtrend market with a clear diagonal resistance trendline. Wait for price to break above the resistance line. Enter a buy trade order only if the VI+ line crosses above the VI- line confirming the bullish reversal. Set the stop loss on the support below the entry candle.
When to Exit?
Close the trade as the VI+ line crosses below the VI- line.
Sell Trade Setup
When to Enter?
Identify an uptrend market with a clear diagonal support trendline. Wait for price to break below the support line. Enter a sell trade order only if the VI+ line crosses below the VI- line confirming the bearish reversal. Set the stop loss on the resistance above the entry candle.
When to Exit?
Close the trade as the VI+ line crosses above the VI- line.
This indicator has the potential to produce excellent trend reversal signals. However, as a standalone indicator it could still be susceptible to false signals especially on choppy markets.
Context is key when using this indicator. The signals it produces tend to work best merely as a confirmation of a reversal which in confluence with a reversal trade setup.
MT4 Indicators – Download Instructions
This is a Metatrader 4 (MT4) indicator and the essence of this technical indicator is to transform the accumulated history data.
This MT4 Indicator provides for an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust their strategy accordingly. Click here for MT4 Strategies
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How to install MT4 Indicator?
- Download the mq4 file.
- Copy mq4 file to your Metatrader Directory / experts / indicators /
- Start or restart your Metatrader 4 Client
- Select Chart and Timeframe where you want to test your MT4 indicators
- Search “Custom Indicators” in your Navigator mostly left in your Metatrader 4 Client
- Right click on the mq4 file
- Attach to a chart
- Modify settings or press ok
- And Indicator will be available on your Chart
How to remove MT4 Indicator from your Metatrader Chart?
- Select the Chart where is the Indicator running in your Metatrader 4 Client
- Right click into the Chart
- “Indicators list”
- Select the Indicator and delete
Click here below to download: