Force Index
Force Index Technical Indicator was developed by Alexander Elder. This
index measures the Bulls Power at each increase, and the Bulls Power at
each decrease. It connects the basic elements of market information: price
trend, its drops, and volumes of transactions. This index can be used as it is,
but it is better to approximate it with the help of Moving Average.
Approximation with the help a short moving average (the author proposes to
use 2 intervals) contributes to finding the best opportunity to open and close
positions. If the approximations is made with long moving average (period
13), the index shows the trends and their changes.
- It is better to buy when the forces become minus (fall below zero) in
the period of indicator increasing tendency;
- The force index signalizes the continuation of the increasing tendency
when it increases to the new peak;
- The signal to sell comes when the index becomes positive during the
decreasing tendency;
- The force index signalizes the Bears Power and continuation of the
decreasing tendency when the index falls to the new trough;
- If price changes do not correlate to the corresponding changes in
volume, the force indicator stays on one level, which tells you the trend
is going to change soon.
CalculationThe 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. If the current closing price if lower than the
preceding one, the force is negative. The greater the difference in prices is,
the greater the force is. The greater the transaction volume is, the greater the
force is.
FORCE INDEX (i) = VOLUME (i) * ((MA (ApPRICE, N, i) - MA (ApPRICE, N,
i-1))
where:
FORCE INDEX (i) — Force Index of the current bar;
VOLUME (i) — volume of the current bar;
MA (ApPRICE, N, i) — any Moving Average of the current bar for N period:
Simple, Exponential, Weighted or Smoothed;
ApPRICE — applied price;
N — period of the smoothing;
MA (ApPRICE, N, i-1) — any Moving Average of the previous bar.
