With the 22-day EMA rising, traders are looking for very short-term pullbacks when the 2-day Force Index turns negative. Traders can act when the Force Index turns negative or wait for it to move back into positive territory. Acting when negative may improve the reward-to-risk ratio, but the correction could extend a few more days.

force index indicator

If the Force index is above zero it signals that the bulls are in control. Negative Force index signals that the bears are in control. If the index whipsaws around zero it signals that neither side has control and no strong trend exists. The 13-day EMAof Force measures the strength of bulls and bears in intermediate cycles. It is positive when there are more buyers than sellers and negative when there are more sellers than buyers.

What’s going on with Meta Platforms stock?

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. This scan searches for stocks where the Force Index is in positive territory and the Commodity Channel Index is oversold. Strong rallies in price should also see the force index rise. During pullbacks and sideways movements, the index will often mean-revert towards zero because the volume or the size of the price moves gets smaller.

force index indicator

The Force Index is available on most trading platforms, such as ThinkorSwim, and a number of free online charting sites including FreeStockCharts.com and StockCharts.com. Here is an example of a 13 period Force Index and and 90 day Force Index. Alexander Elder recommends this setting to reduce the positive-negative crossovers however he Detailed UFX Broker Review does use a setting of 2. Here’s why Meta Platforms Inc. stock has fallen more than 75% since August 2021. We analyse the prospects and risks of investing in Meta Platforms Inc. For instruments that lack reliable volume information (FX/Crypto currencies), you may consider using theRelative Rangesindicator, which was discussedthis post.

A longer or shorter period for the indicator may give you different points of divergence or none at all. I have found that there are times even with different settings, the change in the shape of the indicator is very subtle. Trading a price divergence is a popular trading strategy when using oscillators and we can use the EFI to do exactly that. Since the Force indicator is designed to show buying or selling pressure, there are three specific ways we can use it. The Force Index of 1 shows many crosses of the zero line and for some traders, that is too quick of a signal.

Elder Force Index

The Force Index can be used in conjunction with a trend following indicator to identify short-term corrections within that trend. A pullback from overbought levels represents a short-term LegacyFX Forex Broker Review correction within an uptrend. An oversold bounce represents a short-term correction within a downtrend. Yes, corrections can be up or down, depending on the direction of the bigger trend.

force index indicator

Second, the indicator factors-in the three important aspects of trading like volume, direction, and extent. Finally, volume is an important element because it shows commitment of the buyers and sellers. The index can be used to reinforce a trend, predict corrections, and identify divergencies. When it is applied on a chart, the Force Index is usually a single centreline and a single line.

Strengths and Weaknesses

A stop loss is placed immediately following the entry, just above the recent high. The short trade is held until the Force Index moves back above zero. During a downtrend, short-sell when the 2-period Force Index rallies above zero and then drops back below zero.

  • Traders can act when the Force Index turns negative or wait for it to move back into positive territory.
  • See more details about the indicator in the books by Alexander Elder.
  • In this overview, we will discuss the use of the Force Index.
  • 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.
  • Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures.

He has been a professional day and swing trader since 2005. Cory is an expert on stock, forex and futures price action trading strategies. When volume is considered, an accurate sense of the market’s momentum may also be quickly garnered. However, other scales of action can be revealed with a longer or shorter time window for the moving average.

The important thing is the real exchange volume in stock or commodity markets. To this point, the setup requires that you wait for the indicator to produce an extreme reading to either the up or down side. Again, these high readings just mean you have had sharp price movement with increased volume. To make a conclusion, the Force Index is considered one of the best combinations of price and volume. Notice that in currency trading, the FI uses the tick volume data, which corresponds to the number of transactions, so some distortions are possible. The Force Index shows the best results when applied to volatile markets.

Moving average convergence/divergence is a momentum indicator that shows the relationship between two moving averages of a security’s price. The force index is an indicator that can be further refined, according to whether a trader wishes to adopt a short-term or a longer-term perspective. The two-day EMA of force index mentioned above supports a whole host of additional trading rules that offer precise trend indicators for exact trading situations. A flattening force index is also an important situational circumstance for traders.

The EFI is an oscillator that fluctuates between positive and negative values, above and below a Zero Line. Alexander Elder, the indicator’s creator, believed that there are three components to a security’s price movement. All three of these components are combined by the EFI to generate the oscillator. Andrew Elder wrote 5 other books and he developed the Force Index for all markets. The most popular strategy was to combine it with moving average indicators to measure divergences.

Who Invented The Elder Force Index?

The FI can confirm a trend, identify corrections that are worth trading and even foresee the reversals. All of Bitcoin’s historic all-time highs and crashes were driven by trending market forces. If the Elder Force Indicator is deviating from the mean value, this indicates a strong trending market. Trending markets are the best time to place a trade because the chance to make a profit is the highest. The hourly chart indicates that Bitcoin has fallen to a support area where it bounced the last few times.

Trading Force Index Divergence

Due to their inherent design, lagging indicators use prior price and volume data to calculate the readings. Based on a formula shared below, the indicator measures the strength of price movements and generates signals of potential changes in the price direction. A moving average is a technical analysis indicator that helps level price action by filtering out the noise from random price fluctuations.

The Force Index can be used to reinforce or determine the trend. Said trend, whether short-, medium- or long-term, is dependent on the Force Index parameters. While the default Force Index parameter is 13, chartists can use higher or lower numbers for more or less smoothing, respectively. The chart The Most Suitable Account Type for Me below shows Home Depot with 100- and 13-day Force Indexes. Notice how the 13-day Force Index is more volatile and jagged while the 100-day Force Index is smoother and crosses the zero line fewer times. In this regard, the 100-day Force Index can be used to determine the medium- or long-term trend.

TC2000 platform & data subscriptions are offered by TC2000 Software Company (“TCS”). Securities brokerage services are offered by TC2000 Brokerage, Inc. (“TCB”), a registered broker dealer, member FINRA/SIPC. TCS and TCB are separate companies affiliated through common ownership. The Elder Force Index was invented by Alexander Elder, a New York-based entrepreneur and writer. He authored the best-seller “The New Trading for a Living” where he introduced the Elder Force Index in 1993.