Force Index

The strength of market trends is determined by price and volume:

  • Prices rise in bull markets and fall in bear markets
  • Rapid price changes and high volumes indicate a strong trend
  • Slow price changes and low volumes indicate a weak trend

The Force Index (FI) was developed by Alexander Elder and combines price and volume to give the force behind market trends. The indicator is simple; it’s the difference between the current and previous interval price, multiplied by the current volume:

  • The FI is positive when the price rises
  • The FI is negative when the price falls
  • Large price changes and large volumes give large FI values

Although the indicator can be used as-is, the prices are usually smoothed first:

  • A 2-period moving average is used to open and close positions
  • A 13-period moving average is used to identify trends and reversals

The indicator is interpreted as follows:

  • Buy when the FI falls below zero during an upwards trend
  • It’s a continuation signal when the FI hits a new peak during an upwards trend
  • Sell when the FI rises above zero during a downwards trend
  • It’s a continuation signal when the FI hits a new low during a downwards trend
  • A stable FI indicates that the current trend may change soon

Calculation

The Force Index (FI) for an interval is the current price minus the previous price, multiplied by the volume. The price is smoothed using a moving average.

FI = ( MA( MATYPE, ApPrice, N, J ) – MA( MATYPE, ApPrice, N, J -1 ) ) * VOLUME( J )

MA is a moving average

MATYPE is the type of moving average – simple, exponential, smoothed or weighted

ApPrice is the applied price – open, close, high, low, median, typical or weighted

N is the number of intervals used for the moving average

J is the current interval

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