What is a vortex indicator in crypto?

It is critical for a crypto trader to understand technical indicators and how to interpret them. These indicators aid in forecasting the direction of a financial asset. In the crypto market, there are hundreds of indicators to choose from. The vortex indicator, created by Etienne Botes and Douglas Siepman, is one of these indicators. Let’s have a look at what the vortex indicator is. 

What is the Vortex Indicator?

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The vortex indicator consists of an uptrend and a downtrend line. The vortex indicator can be used to track the strength of trends, identify/predict reversals, and generate entry/exit signals, among other things. The vortex indicator is made up of two indicator lines, each of which represents a positive or negative price trend. The lines intersect to form a vortex shape when built as part of the vortex indicator.

The vortex indicator is built from the highs and lows of the previous two trading periods (for example the past two trading days). The distance between the current period (day) high and the prior period (day) low indicates a positive trend movement. A negative trend movement is defined by the difference between the current period low and the preceding period high.

How to Use the Vortex Indicator?

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The vortex indicator is used to determine where the market's overall trends change. These shifts are referred to as "reversals": while the term "reversal" has negative connotations, it simply means "change" in this context. It does not necessarily imply that the crypto trend has deteriorated. In general, the vortex indicator is calculated in three parts.

To begin, compute the positive and negative movements on the highs and lows of the previous two days or periods.

Second, you must compute the True Range. It is a concept developed by Alex Wilder.

Finally, divide the positive and negative trend movements by the true range to normalize them.

If the uptrend line exceeds the downtrend line (indicating positive movement), the histogram bars will be light green or dark green. The bar will be dark green if the uptrend line has just crossed the downtrend line. When the uptrend line is greater than the downtrend line and rising, the bars will be dark green. This indicates that the trend is still gaining strength. The bars will be light green if the uptrend line is greater than the downtrend line but decreasing. This indicates that the upward trend is weakening.

If the downtrend line exceeds the uptrend line, a negative trend is in progress, and the bars will be red or light red. The bar will be red if the downtrend line has just crossed over the uptrend line or is increasing in value. If the downtrend line exceeds the uptrend line but decreases in value, the bars will be light red (meaning the downtrend is weakening).

Conclusion

To support a reversal signal, the vortex indicator is frequently used in conjunction with other reversal trend patterns. It is incorporated into the majority of crypto technical analysis methods. It is based on a signaling mechanism for new and accelerating uptrends and downtrends. The vortex indicator, like Wilder's indicators, performs best when combined with other trend-following systems and classic price pattern analysis.

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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.