Force index indicator is an oscillator indicator.
Force index indicator was created by Alexander Elder with the main objective of measuring the power of bull whenever the market incline and the power of bear whenever the market decline. Alexander Elder considered three key components in his trading tools. The three key components are as follows;
- Direction of price change
- The extent of price change
- And the trading volume
Alexander Elder further suggested that his trading tool can be best approximated with the help of moving average indicator.
In order to derive the value of the force index, Alexander Elder derived his formula as follows;
- By subtracting yesterday close price by today's close price and then multiplying the result by today's volume.This is as follows:
FORCE INDEX= V*(CCURRENT-CPREVIOUS) where as;
V is volume,C is closing price ,current is today's close and previous is yesterday's close.
If closing price are higher today than yesterday then the force is positive while if closing price are lower today than yesterday then the force is negative.
According to Alexander Elder ,Force index indicator has an oscillator at point 0.0 in which when the force index crosses above 0.0 then the index becomes positive while when it crosses below 0.0 then the index becomes negative.
When force index is below 0.0 and the period of indicator is inclining,then that is an indicator that the market will move upwards thus the trader should close any sell position and enter a buy position while when the force index is above 0.0 and the period of indicator is declining,then that is an indication that the market will move downwards thus the trader should close any buy position and enter a sell position.This is indicated as from the candle stick chart below;
The candle stick chart above shows the force index indicator.The first red arrow is the oscillation point 0.0 in which the force index can be above or below it.The two adjoining red arrows represent the force index curve.There is two other red arrows,that is;point A and point B
At point A ,the index has crossed above point 0.0 at a decreasing period thus signalling the trader to close any running buy position and open a sell position since the market will start moving downwards while at point B the index has crossed below 0.0 at an increasing period thus signalling the trader to close any running sell position and open a buy position since the market will start moving upwards.
Recommendation:If you are a day trader,just use 1 min,5 min 15 min and 30 min time frame while if you are a swing trader just use 1 hour and above time frame if you want Force Index indicator to work well for you
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