How it works
The Vortex Indicator measures the relationship between consecutive bars in a deliberately asymmetric way. Upward movement is defined as the distance from today’s high to yesterday’s low — a measure of how much ground buyers covered relative to where sellers last had control. Downward movement is the mirror: today’s low against yesterday’s high. Summing each over a lookback and dividing by the summed true range gives two lines that oscillate around 1.0 and cross each other when the balance shifts.
The reasoning behind the strange-looking definition is that a genuine trend leaves a trail of overlapping bars biased in one direction. In an advance, each bar’s high tends to sit far above the previous bar’s low while its low stays close to the previous high, so VI+ rises and VI- falls. In a range the two distances are similar and the lines sit together near 1.0. Dividing by true range normalises everything, so the readings are comparable across instruments and across volatility regimes.
Traders use it primarily as a crossover system with a built-in strength read. The crossover of VI+ above VI- marks a shift to upward dominance, and the vertical separation between the lines afterwards indicates how convincing that shift is. A cross with the lines immediately fanning apart is meaningful; a cross where they stay glued together is not. Because the calculation uses simple sums rather than Wilder smoothing, it reacts faster than ADX at the cost of more false crosses.
Where it fits: Vortex answers roughly the same question as the Directional Movement system, and the two often signal within a bar or two of each other. DMI separates direction and strength into different lines, which is cleaner; Vortex keeps them together in one picture, which is quicker to read. Neither replaces a trend-strength filter — running Vortex crossings only when ADX or Choppiness says a trend exists removes most of its bad signals.
Calculation
The arithmetic in words, in the order it happens.
For each bar, upward vortex movement is the absolute difference between the current high and the previous low, and downward vortex movement is the absolute difference between the current low and the previous high. True range is the usual largest of high minus low, the absolute distance from the high to the previous close, and the absolute distance from the low to the previous close. Sum each of the three series over N periods using plain sums. VI+ is the sum of upward movement divided by the sum of true range; VI- is the sum of downward movement divided by the same denominator. Both lines centre on 1.0, and their sum is not fixed, so they can rise or fall together.
Source
An AlgoBeamScript implementation of the formula above, written by us from the arithmetic so the code and the calculation agree line for line.
Runs unchanged on the platform and in the AlgoBeamTS runtime. The language reference is in the documentation.
Inputs
Defaults are the values most charting packages ship with. They are conventions, not optimal settings — the right length depends on your instrument and your holding period.
| Input | Default | What it changes |
|---|---|---|
| Length | 14 | The number of bars in each sum. Short lengths such as 7 or 9 cross frequently and suit intraday work; 21 and above give a slow line that mainly reports intermediate regime and rarely crosses without cause. |
How to read it
What practitioners take from the plot. Read these as descriptions of market state, not as entry signals.
- VI+ crossing above VI-
- Upward movement has become the dominant force over the lookback. The core signal of the tool, and best taken only when the lines separate afterwards.
- Wide and widening separation between the lines
- A strong, one-sided trend. The gap is the indicator’s measure of conviction, and it usually peaks well before price does.
- Both lines converging toward 1.0
- Upward and downward travel have equalised. The trend has dissolved into a range, and crossovers from here should be ignored.
- Crossover followed by an immediate re-cross
- A whipsaw, and the characteristic failure of the indicator. Common when the lines were close together before the signal.
Limitations
Where this indicator misleads. None of these are fixed by a better parameter.
- It uses plain sums rather than Wilder smoothing, so it reacts faster than ADX and consequently produces more false crossovers — especially on short lookbacks.
- In a range the two lines hug 1.0 and cross repeatedly. Without a separate trend-strength filter, a mechanical crossover system will churn.
- The construction reacts strongly to gaps, because the comparison of a high to the previous low spans the overnight break; a gap can flip the lines without any intraday trend developing.
- It is a relative measure with no fixed extremes. There is no overbought or oversold level, so the only usable reading is the relationship between the two lines rather than their absolute values.
Educational reference. This page explains how an indicator is built and how it is commonly read. It is not investment advice, not a recommendation and not a signal service. No indicator is profitable on its own — each is a way of describing a market, and any rule built on one has to be tested with realistic costs before it is traded.