Force Index indicator: active volume as source of stable profit

The more periods used the smoother the movements of the index, typically preferred by longer-term traders. Increase the number periods on the Force Index to decrease the number of trading signals. Using trend identification and a short-term Force index, traders can find entry points into the trending move.

The Force Index is an indicator that uses price and volume to assess the power behind a move or identify possible turning points. The Force Index can be used to reinforce the overall trend, identify playable corrections or foreshadow reversals with divergences. The force index is a technical indicator which is used to calculate the power behind movements in the price action. As such, the indicator is mainly used to confirm the breakouts and identify potential changes in the trend direction. It is based on the formula that compares the current market price with a prior market price, and multiples it with a volume over the same period. The force index is a simple technical indicator that shows how much the price is changing relative to past prices.

What Is The Elder Force Index Formula?

Forex data can be compared to fuel and software that uses this data is like an engine. In order to try the indicator performance alone or in the combination with other ones, you can use Forex Tester with the historical data that comes along with the program. After all the sides of the indicator were revealed, it is right the time for you to try either it will become your tool #1 for trading. In such trade Force Index system will carry out a role of the trend indicator.

• On the strength of the bearish divergence – go short when the EMA turns downward.
• Dr. Alexander Elder is one of the contributors to a newer generation of technical indicators.
• The force index can also be used to help determine overbought or oversold zones for potential buy or sell trading signals.
• The greater the difference in prices is, the greater the force is.
• The Force Index is an oscillator tool created and developed in the Trading with a Living book.
• The indicator fluctuates above and below zero showing the force of the current price move based on direction, magnitude and volume.

The primary purpose of using the force index indicator is to show traders how strong the bears are during a downtrend and how strong the bulls are during an uptrend. The force index can also be used to help determine overbought or oversold zones for potential buy or sell trading signals. A rising force index, above zero, helps confirm rising prices. A falling force index, below zero, helps confirm falling prices. A breakout, or a spike, in the force index, helps confirm a breakout in price.

Trade signals of the indicator

Yet that reversal could take a long time to develop, or if momentum picks up again the reversal may not come at all. Another entry method must be used in conjunction with divergence to make it useful for trading purposes. When there is little volume or price movement the Index oscillates around zero, showing the price has no well defined direction or power. Under most circumstances, trades are avoided when there is a lack of strong movement as indicated by the Force Index. The indicator is above zero when the price is above the prior close; it is below zero when the stock price is below the prior close.

IC Markets are my top choice as I find they have tight spreads, low commission fees, quick execution speeds and excellent customer support. The higher the positive reading on the Force index, the stronger is the bulls’ power. Continuation of the market trend – all the numerical indicators of the force index are increasing. The content on Dumblittleman is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor.

Updating of an extremum on the line of the indicator in the direction of a price tendency confirms the current trend. If the price so far reacts poorly, but the volume rises, then this direction of movement remains a priority. The best Elders Force Index trading strategy is to use it as a supplementary indicator for trend-confirmation.

The Force Index is used in various capacities, including trend confirmation, trade signals within a trend and divergence. The indicator fluctuates above and below zero showing the force of the current price move based on direction, magnitude and volume. Since the indicator moves back and forth across the zero line it is prone to providing false signals. Using the indicator in conjunction with other indicators or price/trend analysis will help filter out some of the false signals, and will make divergences more tradeable. The built-in force index indicator on most trading platforms nowadays eliminates the need for you to compute the values manually.

Elder Force Index

This can make it easier to identify bullish and bearish divergences. Chartists can click “advanced options” to add a moving average, horizontal line or another indicator to the Force Index. The chart above shows Best Buy with the Force Index sporting a series of divergences. The green lines show bullish divergences and the red lines show bearish divergences.

The three key components of the force index are the direction of price change, the extent of the price change, and the trading volume. When the force index is used in conjunction with a moving average, the resulting figure can accurately measure significant changes in the power of bulls and bears. The money flow index , like the force index, uses price and volume to help assess the strength of a trend and spot potential price reversals.

For Short Trades

Notice how the 1-period Force Index fluctuates above/below the zero line and looks quite jagged. Elder recommends smoothing the indicator with a 13-period EMA to reduce the positive-negative crossovers. Chartists should experiment with different smoothing periods to determine what best suits their analytical needs.

The idea is to find an entry point by the current A trend is a direction in which the market or the price of an instrument is moving. Trends can be upward, downward or sideways and are common to all types of markets. Since the Force Index combines volume and price, it is very good at showing the strength of a trend. When th eindex hits a new high, a given uptrend is likely to continue.

If a trend is strong, the force index will change sharply. At the same time, if prices change by inertia, the FI will change only slightly. If the current price increases but the indicator is not, it means that the uptrend weakens. In this blog post, we look at the basics of the force index indicator, how it is calculated, how to interpret its readings, and we share with you a simple trading strategy. If the price makes a new high/low and the indicator moves in an opposite direction, it signifies a trend reversal.

Elder recommended enhancing the results of the Force Index by averaging its values with an Exponential Moving Average . To plot this formula as a histogram, after dropping the formula in an inner window, right click on the indicator and select properties. Or, you may drop all three indicators in the same inner window if you wish. For instruments that lack reliable volume information (FX/Crypto currencies), you may consider using theRelative Rangesindicator, which was discussedthis post.

Getting Started With Forex

The force index indicator belongs to the family oscillators and generates values that can travel up or down indefinitely. From beginners to experts, all traders need to know a wide range of technical terms. The vast majority of retail investor accounts lose investing for beginners 101 money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

A relative disadvantage of the indicator Force Index is the delay of signals, the problem is solved by applying additional trend indicators. It is considered to be the best tool for finding trading signals for periods of less than H1; often used as a histogram. Sometimes long periods of smoothing are applied; in these cases, the index can estimate a long-term trend. The period is less, the «more sensitive» the indicator turns out.

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The Force Index uses both price and volume to measure buying and selling pressure. The price portion covers the trend, while the volume portion determines the intensity. At its most basic, chartists can use a long-term Force Index to confirm the underlying trend. The bulls have the edge when the 100-day Force Index is positive. The bears have the edge when the 100-day Force Index is negative.

The FI is calculated by multiplying the difference between the last and previous closing prices by the volume of the commodity, yielding a momentum scaled by the volume. The strength of the force is determined by a larger https://day-trading.info/ price change or by a larger volume. The force of every market movement is characterized by its direction, scale and volume. If the closing price of the current bar is higher than the preceding bar, the force is positive.