good morning and welcome everyone my
name is Cameron May it's 11 o'clock
Eastern Standard Time on a Monday
morning that means it's time to get back
into our ongoing series of discussions
called getting started with technical
analysis and today I thought an
appropriate indicator to investigate
since everything seems to be swirling
around is something called the vortex
indicator so I'm looking forward to this
this will very likely be new to most of
you I would would be interested to know
if anybody's used it before though if
you want to chat that in but great to
see everybody this morning let me say
hello to all of your returning veterans
I see a lot of people chiming in I
already saw somebody chiming in from
Hawaii who was that that was Gerald good
morning Neil hello there Matt Mariano
Donald Neil's Charles Lucia ridiculously
successful Osbourne rocky who else it's
their T Stewart Jeff Terrance Brian
Allen Camille and Brian again oh hey
good morning great to see everybody
looks like we've got the whole
continental United States covered going
from New York City all the way over to
California we have Hawaii represented I
just saw it Seattle there there's
Florida I'm sitting here in Salt Lake
City so great to see everybody let's
dive right into this very first thing
that we always do is pause to consider
the risks associated our investing and
then we'll set a more specific agenda
and then we'll get right to
understanding that indicator but just
very quickly some important information
any investment decision you make and
your self-directed account is solely
your responsibility transaction costs
are important factors and should be
considered when evaluating any trade all
investing involves risks including risk
of loss and past performance of any
security or strategies not guarantee
future results or success all right so
here's our very simple agenda today
we're going to define the vortex
indicator that includes a specific
introduction to the calculation of this
indicator how this is one that takes a
few steps to calculate so this may be a
discussion that you need to go back and
watch on the archive alright if you want
to
really drive and dive into the
calculation but we'll also get to the
applications the potential applications
more tech vortex indicator and all of
this we're gonna learn from real life so
we're gonna use thinkorswim to review
some example charts so that we can
connect to theory straight to
application and hopefully everybody goes
home with an understanding of what the
vortex indicator is they have a new tool
in their technical tool box for the
analysis of stock charts alright so I
hope I do hope I have to say in today's
times
I certainly hope that everybody is
staying healthy everybody staying safe
practicing all the the the best habits
and behaviors to keep ourselves safe and
healthy but let's go right to
thinkorswim and I'm just going to be
using Apple as our example chart for
today I'm also going to be using a
number of abbreviations for the days
these are gonna be pretty simple H is
going to be used for the high L is gonna
mean low C as you would probably guess
as you're seeing the the rhythm already
that's gonna be the close they're gonna
be some new ones here though V what's
the topic for today the V is going to be
the vortex ok M is going to represent
movement I just refers to the word
indicator lowercase C is going to be the
current candle okay and then lowercase P
is going to be the previous candle
that's it so as you see me start to
outline this equation or it's gonna be
actually a series of equations down
below that's what those abbreviations
stand for so let's talk about
calculating the vortex indicator and to
help us visualize what's happening here
let me first of all describe maybe why
it's called the vortex indicator if you
don't know what a vortex is if you've
ever seen a whirlpool that's a vortex if
you ever seen a tornado
that's a vortex it's something that's
spinning so how do stock markets spin I
know that some people might think the
heads are spinning right now
but this indicator a big portion of an
important factor in this indicator is to
look from low so let's draw this in low
up to high so the low of one day up to
the high of the next and then down to
the low again okay so you can see how
that well that sort of zig zags that's
kind of interesting because that's what
we talked about last time but then we
just connect the other dots the low of
that day to high of the next and then
back down to the low and then up to high
and you can see we get this sort of
swirling effect this sort of vortexing
as the lines are crossing back and forth
you see see the visual there that gives
this vortex indicator its name I didn't
do a very good job of drawing that but
at least it it sort of describes the
logic there okay so how is this
calculated okay in order to calculate
the vortex indicator we're going to
determine three in my view very simple
values first of all we're going to
define something called the true range
now you've probably heard of a TR that
true range before and for those of you
are calculating a range you know that
it's the difference between the high and
the low price on a candle well that's
that's part of the equation here what
we're actually looking for here the true
range is act will actually equal to the
greatest of the distances between three
things number one it's going to be the
current high and the current low that's
actually the range that most people are
familiar with so we're just looking at
you know if we were looking at today's
candle we look at the high here and the
low there and there's our range okay
well that's one potential value second
potential value is going to be the range
between the current high and the
previous close
so instead of looking at the distance
from here to here we're looking at the
distance from here to there and you can
see in this case it's a very nominal
amount all right and then finally we
look at that there's the the distance
between the current low and the previous
close so what would that be
that would be this low right here and
the close right there and of the three
things that we just looked at the
distance between current high and
current low current high and previous
close and the current low in previous
close which one has the greatest value
it would actually be this one current
low to previous close we're just looking
at those three things and looking to see
which one has the greatest distance so
that gives us what we call the true
range in this calculation so that
completes step one okay step two we need
to calculate something called the
movement this is also an indication of
the trend sometimes it's described as
the trend movement alright but
generically speaking it's well not
generically speaking specifically
speaking for this indicator this the
second value is known as vm+ or vm- you
might call that vortex movement positive
or vortex movement negative okay and
you'll see why in just a moment it's not
terribly complicated to calculate again
in this case the vm+ is simply the
current high minus the current low
particle previous low alright so what
was our high it's right here and we and
then we just look at the distance we
take the current high and subtract the
previous low and that would give us our
VM are our vawa pardon me you'll hear me
do this some
I always went trying to describe the
vortex momentum you'll hear me trip up
and I'll say volatility I don't mean to
say volatility if I ever say volatility
in this discussion volatility does not
play a role it's all vortex okay but
that's it we look at the current high
and subtract the previous low and that
gives us the vortex movement positive so
what do you think is the vortex movement
negative or or vm- that's just going to
be the current low minus the previous
high so literally we're just looking at
the distances between the changes in
highs and lows from day to day and are
we getting big moves upward or big moves
downward and that can define whether
we're getting strong trends in one
direction or the other or at least
initial trends in one direction the
other now step three once we've
calculated the true range so that's the
greatest of those three values and the
vm+
and the vm- we're going to sum each of
the above three values so in other words
we're summing TR over a specific time
frame we're summing vm+ over a specific
time time frame and vm- over a specific
time frame so let's visualize this let's
come up here to our indicator tool this
is our edit studies icon and I'm going
to type in the word vortex okay or start
to type in the word vortex there's only
one in this list that has the word
vortex
in the title so we're gonna choose the
vortex indicator and add that to our
chart and you'll notice by default this
is going to default to a 14 period
indicator now there are a lot of
indicators that default to a 14 and this
is a customizable indicator where we can
change the timeframe and that that
speeds up or slows down the signals that
are generate
from this indicator but let's just apply
this and then click OK and what you'll
see as i zoom back out here on Apple is
that we have these two lines so we have
a green line and we have a red line so
the Green Line is our it's known as the
iv+ we can just call it the green line
the red line is known as the iv-
or in other words the indicator for
Tech's positive or negative it's sort of
a mouthful I think the easiest way to or
some people even invert this and they'll
say the vi+ vi- for the vortex indicator
yeah and one thing another thing that
you will discover is if you were to
study this indicator and you were to
learn from ten different people the
titling of things gets a little bit
muddy
so a few worded if you were to go and
listen to ten different videos you might
hit here ten different names doesn't
matter all of us are looking at two
lines we're looking at a green line and
we're looking at a red line all right so
in this case we have the VI positive the
green line and then then we have the VI
negative the red line and what we're
doing right now is specifically
constructing those two here's how those
two are calculated we take the we take
these the true range and the VM positive
and then vm negative and we just add
them up over the course of however many
days who are selected for this indicator
so well in the case of the true range we
might look at the last fourteen days
figure out the true range for each day
and just add those all up you don't have
to divide by anything just add them all
up the VM positive we add it up for last
14 days the VM negative we add it up for
the last fourteen days so we just sum
those up for each of those three and
then finally we calculate
vi+
and vi- the volatility indicator
positive volatility indicator negative
here's how that's done we take the sum
of all of the see I keep saying
volatility is Vortech sorry I warned you
we take the sum of the vortex movement
positive for the last 14 days and divide
that by the sum of the true range for
the last 14 days and that gives us the
VI positive and then finally we take the
sum as a matter of fact I don't even
need this space here if our mathematical
expression is accurate BM negative
divided by the sum of the true range
that gives us our v i- alright now the
reason why i go through this these
calculations and sometimes it's quite
some heavy lifting other times it's
pretty straightforward i think if you
were to go back through this and just
talk this through yourself a few times
all of a sudden you would say wait this
wasn't nearly as complicated as i
thought initially this true range was
pretty easily determined the vm+ was
pretty easily determined the vm- was
pretty easily determined then i just add
them all up and divide one by the other
it's not that big of a deal but what
this does is it generates these lines
for us and what these lines are intended
to do is determine is the current trend
strengthening is it weakening or is it
even reversing in one direction or the
other so let's look at this indicator
now that we know how it's calculated
let's look at how it might be applied
for a trader and for a lot of people
this is where it gets really interesting
all right so let's let's focus our
attention first of all on the VI
positive that's this green line that
green line has some specific reference
points if you'll notice if you look
to the right of the indicator there's a
range here that goes from 1.5 down to
0.5 so there's a 1 point range ranging
between 0.5 and 1.5 right dead center is
going to be 1 now I don't know if anyone
here is using a Mac B oscillator but the
Mac D oscillator oscillates back and
forth around a center line but in that
case that would be the zero line if you
just visualize this one is pretty much
equivalent to the Mac B zero we've taken
a big step forward into understanding
this indicator but generally speaking as
long as that green line is above one its
interpreted to be a bullish confirmation
of Trent so you can see as we enter you
know the last 12 months on Apple we have
that green that vi+ line is above 1 and
maybe it might be helpful if I draw in
that one line because it's a little bit
faint it's this dotted line right here
I'll just go ahead draw it in roughly
that's not very well drawn but you can
see that's our one but right through
this period green is above 1 and
therefore we might interpret this to be
bullish for the trend ok now right here
we sag below 1 and for some technicians
that may imply the beginning of a
downward move on the stock it might it
might a hint that we have a downward
move that's pending
yeah Lian says am I in the right place
is this getting started with technical
analysis charting essentials you are
this is the right place yep and so just
to get Alliance up to speed and everyone
else who might be new to this what we've
been doing over the last several months
is just taking one indicator and just
explaining how it's built how it works
so we're trying to flesh out a new
traders understanding of the toolbox
that's available to them right up here
in our studies area all right that's
what we're doing so we've talked about
how this indicator is built now we're
talking about how a trader might
use it and I think you can see pretty
simple if we're looking at the Green
Line fading down below one then that
might be a signal that there's some
bearishness I think you can see how that
that could hold some theoretical value
for a trader boy if they if they had a
signal that right here was a potential
turning point for the stock that might
have saved them a few weeks of pain and
or otherwise I suppose some technical
discomfort in the stock that took some
time to recover hey Troy
checking in from idle fantastic I'm an
Idahoan I don't know if anybody knows
that yeah raised in southern Idaho went
to minute Co high school if that doesn't
completely undermine your faith in me
there Troy all right but back to our
chart there's a second signal that a
trader may wait for if they if they're a
little bit more conservative they're
waiting for a little bit quote-unquote
stronger signal now this requires
patience it may require that we wait for
a few more days while stock is pressing
downward for a later confirmation but
that is when we get a crossover of the
green line over the red you can see that
when that green falls below the red that
may signal bearishness on the stock so
let's let's look at some other examples
here
remember it's green crossing down
through the red so we had one here and
in this case we this is this is a good
example of this is a whipsaw a false
signal where it came right when the
mutton when that stock seemed to be
pulling down but it recovered pretty
quickly in other cases like more
recently we've had a crossover the green
down through the red and that looks like
let's see if we can eyeball that a
little more carefully that looks like
that happened right around here okay so
there's our green crossover down through
the red well if green crossing down
through the red is bearish for the stock
or their stock trend what do you suppose
it is what do you suppose the signal
might be when the green is crossing up
and through the red that's bullish for
the stock
and in this case the most recent green
crossing up through the red signaled the
start of a pretty solid upward trend
here we got let's see where as another
recent example here was a green crossing
up and through the red in this case did
we get a whipsaw a little bit of
strength that came out for a few days
but obviously news events recently have
changed things but that's two potential
signals for this indicator there is a
third and final signal and that is for
some traders they will look for support
and resistance areas on this chart for
example they may look to see how far
does the red tend to rally and where
does it seem to encounter resistance and
for the green how far does it tend to
sag before it encounters support so in
this case the red seems to rarely get
above not much above one you can see
that right here right here snuck above
one and the green slipping down below
really doesn't go much below 0.6 so as
the as green hits these extremes at
point six and starts to bounce up from
there that may signal a longer-term
reversal in trend as Green gets down to
that six range and starts to go up
maybe obviously only time will tell at
this point but that may signal the
beginning of an upward move and
vice-versa with red okay so that is the
vortex indicator should we look at
another stock and see how that how that
plays out or maybe even look at the S&P
500 let's see what's going on with the
SPX let's look at some historical
examples let's go through about some
bullish crossovers all right so
by me first of all well here's a bearish
crossover and that looks like that
happened right in the first part of May
we had another bearish crossover right
there that was in the last part of July
we had some we rose up through got a
bullish crossover here's another
consolidation bullish and bearish right
back and forth that might have led to it
indicated that we were going to head
down but there we had a pretty quick
reversal and went back to a bullish
crossover right about here okay so
bearish seem to do a pretty good job we
certainly had an example of a whipsaw
right there and bullish here was a
signal let me see if I need to
reposition that one that one looks like
it came a little bit later than my
initial drawing it looks like it was
right about there mid October but that
bullish crossover we got that crossover
and how long did that last that lasted
all the way to the end of January where
we started to get some signs of weakness
from the indicator and then finally an
ultimate bearish crossover right there
and that was shortly after the peak it
wasn't right at the peak but right there
in late February so I think this is
going to be one of those indicators that
requires some repetition in order to get
a real degree of comfort with it
first of all it's probably gonna require
some exploration regarding the
calculation of the indicator so what I'd
suggest you do pull up the archive for
this webcast vast majority of our
sessions are archived there's always the
possibility that a session might not get
archived maybe there's a technical
hiccup or something like that that
prevents it from being archived ah
Pocatello
the Indians yep I played against you
guys in high school that's where you're
from Troy yep yeah Polk tells great town
all right
but this is one where you might want to
go back to the archive for this session
that is again supposing that it gets
archived which is a very strong
probability there's always an outlier
opportunity where it might not get might
not get posted but the what you might
want to do is go through the calculation
see if you can just see if you can
cement in your minds
how is the true range calculated how is
the vm+ calculated it really is the
current high minus the previous low
that's it
how's the vm- calculator or the BM
negative calculated current low minus
previous high those are very simple so
what you would just do is do those for a
period of five days or 14 days or
whatever just add those up and then
divide that value divide the the sum of
the true range into the sum of the vm+
or the sum of the vm- that calculates
those lines for you yeah so that it
takes a little while to get used to it
but I think that you get there quickly
final comment that I'd like to make is
that some traders will look at this and
I'll say boy it seems like even on let's
go back to Apple I got some of these
whipsaw events where the stock the
indicator was just giving me signals one
right after the other buy sell buy sell
buy sell what may need to be done is to
slow this indicator down and you
technicians how do we slow an indicator
down this is pretty much an universal
rule there may be exceptions I haven't
discovered them yet but generally
speaking if we use a longer period in
this case we've been using a default 14
days what if we extended this to let's
say 25 or 30 days using a longer period
slows the indicator down and we'll give
fewer signals or will get it will have a
longer span between signals so we could
edit this study click on little gear
icon to edit it and we could change this
to let's say what if we did 30 then just
click OK click apply and click OK again
and you can see this is now generating
fewer and slower signals and for a
longer term approach to to the
management of a trade or to the
management of a portfolio that may be an
appropriate adjustment if we're doing
some faster more aggressive trading
maybe we do a faster indicator change it
from 14 to maybe a 10 something like
that
that's it Terrance you got it
Oh another Idahoan all right great to
see you okay well everybody I've
accomplished what I set out to do what I
wanted to do today was define the vortex
indicator I had swore to myself that I
wasn't going to use the word volatility
at all today you saw me do it I did it a
number of times my apologies every time
that I said volatility just mentally
insert the word vortex here but we
wanted to define the vortex indicator we
wanted to show some potential
applications for the vortex indicator
and we wanted to go through some sample
charts and we got that accomplished so
now that we have now we have a new tool
that might be applied in the
administration of a self-directed
portfolio everybody hope you enjoyed
that we're gonna do this again next week
I'll select a new a new indicator from
our menu of indicators in the meantime
we have more education coming right up
we have Pat Mullaly coming up at 12:30
Eastern Standard Time to deliver his
discussion on building and managing an
ETF portfolio so go enjoy Pat's
presentation speaking of Pat if you're
intrigued by these sorts of topics
technical analysis but you want to go to
another level it'd take a more advanced
approach well Pat actually teaches a
webcast on Fridays it's called advanced
charting techniques so you can go to his
web cast live on Fridays or I'll just
link go 28 minutes into this archive
right toward the end I'll put a link up
in the upper right hand corner to one of
Pat's previous discussions alright
everybody thanks for joining me today
I'll look forward to talking with you
again next week
quick reminder of the risks associated
with your investing risks are real we
did use real examples in today's
discussion it's not a recommendation or
endorsement of the securities or
strategies disk
I will look for you I would be teaching
tomorrow's webcast getting started with
TD a.com so I'll see you there that's
five o'clock Eastern Standard Time
everybody you can join me then you can
join me my other regularly scheduled
sessions that are sprinkled throughout
the week but whenever I see you again
until that moment arrives I want to wish
you the very best of luck happy
investing bye bye
