Ultimate Guide to Force Index Indicator. The Force Index indicator was developed by Alexander Elder in the book "Trading for a Living." It fluctuates above and below zero, providing information on the power of a price movement based on price direction, magnitude of movement and volume. The Force Index is an indicator that uses price and volume to assess the power behind a move or identify possible turning points. Developed by Alexander Elder, the Force Index was introduced in his classic book, Trading for a Living.‎Calculation · ‎Trend Identification · ‎Divergences · ‎Identifying Corrections. The Force Index indicator is an oscillator that attempts to gauge the strength behind price movements. It does this by looking in combination at three key pieces.


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Notice how the most recent EFI reading is so much higher than the previous gap and reversal period that the previous extreme reading now looks like a bump in the force index indicator.

Again, the Elder's Force Index has no ceiling, so the indicator can run if given the right circumstances. Recap of Strategy 1 - Extreme Readings Look for force index indicator extreme high or low reading The EFI needs to quickly reverse back to a recent peak or trough Buy or sell the stock once it reaches the recent peak or trough Strategy 2 - Sell the pullback to the trend line This strategy is a bit involved, so stay with me.

I'm pretty sure you are all familiar with the concept of drawing trend lines on indicators. Funny enough, you can see support and resistance zones the same way the show up on price charts when using the EFI.

Since the Elder's Force index indicator Index can trend in one direction without boundaries, the EFI will often produce longer-term trends. As a day trader, when you are looking for a midday setup, which requires identifying longer patterns, as you do not have the volatility present in the morning, the EFI can provide insight into a break in trend.

Trend lines on the EFI If you were in the stock and were only looking at the price force index indicator, you really had no way of knowing the fun ride was coming to an end.

Ultimate Guide to Force Index Indicator

However, the Elder's Force Index had a break below a trend line, which was an early indication that the force or strength behind the move force index indicator dissipating.

The same as in price action, once the EFI back tested the uptrend line, the price went flat. Something like a Period EFI can be used for an intermediate or longer-term trend.


Divergence Divergences are a force index indicator signal generated by many different indicators. The same is true for the Elder's Force Index indicator.

For example, when a Bullish Divergence is forming, EFI crossing the Zero Line into positive territory could further reinforce a signal of an force index indicator reversal. Price Corrections During an uptrendEFI can present buying opportunities in the form of price corrections.

Elder's Force Index (EFI)

EFI can temporarily drop into negative territory when price dips before continuing the uptrend. During a downtrendEFI can present selling opportunities in the form of price corrections.

EFI can temporarily rise into positive territory when price bounces before continuing the downtrend. This index measures the Bulls Power at each increase, and the Bears Power at each decrease. It connects the basic elements of market information: Share The world of trading and technical analysis is continually developing new ways to make the most of our most basic trading tools and indicators; Dr.

Alexander Elder is one of the contributors to a newer generation of technical indicators. In this two-part article series, we look at his force indexwhich is an oscillator that measures the force, or power, of bulls behind particular market rallies and of bears behind force index indicator decline.

Basics of Technical Analysis. Force index indicator 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 averagethe resulting figure can accurately measure significant changes in the power of bulls and bears.

In this way, Elder has taken an extremely useful solitary indicator, the moving average, and combined it with his force index for even greater predictive success.

The Calculation The force index is calculated by subtracting yesterday's close from today's close and multiplying the result by today's volume. If closing prices are higher today than yesterday, the force is positive.

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