Elder's force index (EFI) indicator: How to analyze the direction of the financial market using elder's force index indicator

By QuintoTrader | Quinto Trader | 14 Oct 2019


Elder's force index is an oscillator indicator.

Being an oscillator indicator, Elder's force index indicator was created by Alexander Elder with the main objective of measuring the power of bull or bear market movement based on price and volume using three key components, namely; Direction, extent and volume.

Since elder's force index is an oscillator indicator, it therefore has an oscillation at point 0 and is based on centerline and divergence.

According to Alexander Elder, the values of elder's force index is being derived using the following formula;


Elder's force index= (Today's close - yesterday's close)* today's volume.

 

 

Since elder's force index is based on centerline,it therefore follows that when the Elder's force index rises above 0, that will be an indication of an upward trend market thus the traders should be trading upwards while when the elder's force index falls below 0 that will be an indication of a downward trend market thus the trader should be trading downwards.

 

 

Also, based on divergence it, therefore, follows that when the price is moving upwards while the elder's force index is moving downwards, the price will reverse and start moving in the same direction downwards as the elder's force index. On the other hand, when the price is moving downwards while the elder's force index is moving upwards, the price will reverse and start moving in the same direction upwards as the elder's force index. This is indicated as in the candlesticks chart below;

 

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From the candlesticks chart above, there are 3 points, points A, B, and C.Point A and B represent divergent points while point C represents the elder's force index.

At point A, the market price is moving upwards while the elder's force index is moving downwards. This results in a reversal of the market price downwards in the same direction as the elder's force index. This will signal the trader to be trading downwards.

On the other hand, at point B, the market price is moving downwards while the elder's force index is moving upwards. This will results in a reversal of the market price upwards in the same direction as the elder's force index. This will signal the trader to be trading upwards.

 

Recommendation: If you are a day  trader, just use 1 min,5 min,15 min, and 30 min timeframe while if
you are a swing trader just use 1 hour and above timeframe if you want elder's force index to work well for you

 

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QuintoTrader
QuintoTrader

Trader, Blockchain Technologist and Contentpreneur. Also founder and CEO @ Quinto Trader


Quinto Trader
Quinto Trader

Teacher forex school provides individual with training regarding to forex trading and cryptocurrency trading. We also share trading ideas online for both crypto and forex market

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