Force Index

Force Index
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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 an downwards trend
  • A stable FI indicates that the current trend may change soon

Calculation

The Force Index (FI) for a 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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