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Hello mates. Week 6 into Season 3 of the Crypto Academy and so far so good. Thanks to all the lecturers for the work done so far. This is my submission post of @asaj homework task.
In your own words explain the vortex indicator and how it is calculated
The Vortex Indicator is a technical analysis tool used by traders to understand and predict market trends. The vortex indicator consist of 2 oscilating lines, one indicating a positive trend in the market and the other indicating a negative market trend. The vortex indicator is used to identify current market trends and confirm trend reversals in the market. It also sends signals to market participants to either buy or sell an asset in a specific period.
The blue line in the chart above is for a positive movement in market trend, bullish trend. The red line on the other hand indicates a negative movement in market trend, bearish trend. When the blue line is seen over the red line, it means the asset is in a bullish trend and it is a good time to buy the asset. On the other hand, when the red line is above the blue line, it means the asset has entered a bearish trend and the asset should be sold off.
The oscilating lines formed by the Vortex Indicator is as a result of differences in the highs and lows of current and previous periods. The distance from the current high to the previous low indicates a positive trend movement, whereas the distance between the current low and the pevious high indicates a negative trend movement. The strength of a trend is determined by the distance between the highs and lows.
Once a trend is formed, choose a parameter length (time period). Most technical analysts use the 14 periods because it's computations are accurate or close to accurate often times. The parameter length means the number of periods you want the readings of the highs and lows to be taken from for your computation. However, other traders prefer to use longer periods like 28days.
Calculate the True Range. Using Welles Wilder’s method, you subtract the current low from the current high, then subtract the previous close from current high as well as current low.
Choose your parameter, let say 14 periods. Now add the True range, V+ and V- of the last 14 periods:
- Sum of True Range for last 14 periods = SUM TR14
- Sum of V+ for last 14 periodsV = SUM V+14
- Sum of V- for last 14 periods = SUM V-14
Divide Sum V+14 by SUM TR14 and divide SUMV-14 by SUMV-14
SUM V+14/SUMTR14 = Vortex Indicator + (VI+) of 14 periods
SUM V-14/SUMTR14 = Vortex Indicator - (VI-) of 14 periods
Is the vortex indicator reliable? Explain
As a technical analysis tool, the Vortex Indicator is used to identify and predict market trends. The Vortex Indicator also confirms a trend reversal or a current trend in the market. It has proven to be reliable because of its accuracy in determining and predicting market trends. However, when used along side other technical tools or indicators like Moving Average Convergence Divergence (MACD), analysts get the best and accurate results.
How is the vortex indicator added to a chart and what are the recommended parameters? (Screenshot required)
I will undertake this exercise via Trading View.
Follow the link to Trading view website
Launch chart and choose a cryptocurrency pair
I chose Steem/Usdt
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Tap on Indicators to add the Vortex Indicator
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Use the search bar and enter Vortex Indicator and tap on Vortex Indicator from the drop down menu that appears
You will see the Vortex Indicator added to your chart.
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To configure the parameters, tap on VI at the left top corner of the indicator, and tap settings. In the input tab, change the length to the one you deem fit. The default is usually 14.
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The recommended parameters as suggested by Welles Wilder is 14 periods because it gives the desired and accurate results. However, the parameters are not compulsory and it may demand some tweak depending on the market type. In a ranging market, it is prudent to increase the parameter to 28 -30 periods for better results and in a normal market, a shorter period like 7 days is prudent.
Explain in your own words the concept of vortex indicator divergence with examples. (Screenshot required)
There are 2 forms of divergence we can find in the Vortex Indicator.
The first is the Bullish divergence. This is where the V+ trend line in the Vortex Indicator is seen trending upwards but in the chart of the asset, price movement is seen trending downwards for that period. It sends a buy signal to traders.
Below is an example of a bullish divergence
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There is another called the Bearish divergence. This is where the V+ line in the Vortex Indicator is seen trending downwards but in the chart of the asset, price movement is seen seen trending upwards for the period. It sends a sell signal to traders.
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Use the signals of VI to buy and sell any two cryptocurrencies. (Screenshot required)
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In the STEEM/USDT chart above, the buy signal is triggered when the blue line (V+) trends upwards and crosses the red line. This indicates a bullish market trend and it is good time to buy the cryptocurrency.
We can identify on the same chart a point where the blue line (V-) falls and crosses the red line. This indicates a bearish market trend and its a good time to sell the asset.
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In the chart above, the buy signal is triggered when the blue line (V+) trends upwards and crosses the red line. This indicates a bullish market trend and it is good time to buy the cryptocurrency.
We can identify on the same chart a point where the blue line (V+) falls and crosses the red line. This indicates a bearish market trend and it's a good time to sell the asset.
Conclusion
Vortex Indicator is an important technical tool used by traders to understand market trends and confirm trend reversals in the market. Using the Vortex Indicator alongside other technical indicators will give analysts accurate or close to accurate results.
Thanks for reading. Credits to @asaj for this lecture.
Hi @kayduke, thanks for performing the above task in the sixth week of Steemit Crypto Academy Season 3. The time and effort put into this work is appreciated. Hence, you have scored 5 out of 10. Here are the details:
Remarks
Your effort is acknowledged but we hoped had done more. As a reminder, it was recommended to set the length parameter of VI to 7 periods on short time frame charts. Had you done so, you could have gotten quicker signals in task 5.
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