Force Index indicator defines the market movement strength and possible trend reversals based on price and volume data. This indicator is created by Alexander Elder and described in his book “Trading for a Living”.

The Force Index combines three essential elements of the price movement: direction, extent and volume, and oscillates between positive and negative areas as the balance of power changes. This indicator helps to confirm the overall trend, identify correction levels and predict trend reversals.

Elder originally used Moving Average of price difference in the Force Index formula. There is another version of the indicator using the difference of Moving Averages. Given indicator allows to use both calculation methods:

Classical formula (Force Index Type is 'By Elder'):

Force Index = MA[{Price (current value) - Price (previous value)} * Volume, N]

Modified formula (Force Index Type is 'Ordinary'):

Force Index = [MA { Price (current value), N} - MA{ Price (previous value), N}] * Volume

Where:

N – is a period of Moving Average

MA – is a Moving Average;

Price – is a selected Price Type;

Elder uses 1 and 13 period EMA and close price.

Force Index for one period is calculated by subtracting the previous close price from the current close and multiplying the result by volume. In order to get Force Index for more than one period, just use the exponential moving average of the 1-period Force Index. For example, a 13-Period Force Index is a 13-period EMA of the 1-period Force Index values for the last 13 periods.

Methods of use:

1. | Go long if the Force index is below zero and there is a bullish divergence. |

2. | Go short if the Force index is above zero and there is a bearish divergence. |